House Hack...Should I use an LLC?

Question

Hello,

I have recently started an LLC and have a personal house. I have 2 room mates moving in that will pay roughly $100 more than the monthly mortgage cost. I would like to take the rent payments in through the LLC to pay for the mortgage, registered agent fees, and tax software. I will still be staying in the primary bedroom of the property. Should I transfer the deed to the LLC and keep the  mortgage in my name? Is landlord insurance required? (Homeowners is escrowed.) I would like to be able to take property and other deductions through the LLC. I would also like to show that they are paying the mortgage to free up personal DTI to buy our next house hack. Is there anybody out there that is able and willing to help with this? I am obviously a new investor, and plan on turning this property into a full time rental in the future.

Troy DeLong · Answer

@Gavin Kercher

I like where your head is at (minimizing liability and looking for tax advantages), but you don't want to overcomplicate things.

Transferring the deed into your LLC while keeping the mortgage in your personal name will most likely default on your lenders 'Due on Sale Clause'.

All lenders will be slightly different, but in my experience, lenders are able to count your properties rental income towards your DTI ratio after 12 months of solid rental income, whether it's in your personal name or LLC. And with most business (LLC) financing you still have to personally guarantee the loans.

Most insurance policies will be more expensive for businesses (LLC) versus in your personal name.

Hope this gets you close to answering your questions! At the end of the day, talk with your lender, CPA and insurance agent about all of these things before making a decision. If you're just starting out, you may want to "JUST DO IT" in your personal name and worry about all of this 'LLC vs Personal' discussion for when you get several properties under your belt.

Best of luck!

Jay Hurst · Answer

The LLC would NOT free up personal debt to income ratio. The loan you took up was based on your personal income/credit/assets etc so you personally guaranteed the mortgage. Simply deeded over to an LLC does not change anything at all.  I wish the myth of the magical LLC would go away, but I do not think that is happening anytime soon.

Chris Seveney · Answer

@Gavin Kercher

If the mortgage is in your name it does not matter if it’s in a LLC or not, you still have a debt obligation. LLC does NOTHING for tax avoidance. You can claim rent with or without LLC

Speak to your cpa

Kai Kopsch · Answer

@Gavin Kercher congrats on your first post and house hacking is a great way to start. Asking in a forum for tax advice is the same as getting tax advice from TikTok! please get tax advice from an CPA.

Adriel Cisneros · Answer

@Troy DeLong -- thank you for the great insight.

You are absolutely correct.

Lenders will certainly count rental income whether its in your name or the single member LLC. No material difference.

And filing a Schedule E and 1099K will remain unchanged in the aforementioned scenario.

Ryan Thomson · Answer

@Gavin Kercher I completely agree with @Chris Seveney. You can take all of those tax deductions without an LLC. Also, there is potential the loan is called due if you quit claim it to your LLC.

I think you are over complicating things for no added benefit. I would consider avoiding the LLC for now. If you are worried about liability an umbrella insurance policy for up to your total net worth is something to consider. For a million bucks of liability protection it's like $100/year.

Adriel Cisneros · Answer

Expand further. That’s a great point.

Basit Siddiqi · Answer

LLC is used to hold Business Property.A house-hack is a partially a personal use property.

Eliott Elias · Answer

Depending on what kind of loan you have, this will put you at risk for the loan to be called due. Talk to your lender before you do this.

House Hack...Should I use an LLC?

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