Can you create an LLC for a multi-family house-hack?

Question

The title says it all. Researching before trying my first house hack in NJ. Can you (or should you) start an LLC for your house-hack? Is it complicated by the fact that you’re living in it?

Mike McCarthy · Answer

What most people try to get out of an LLC is liability protection. For the first few properties most investors buy (1-4 unit properties at least), it’s not worthwhile. Decent landlord insurance, keeping the property in good repair, and possibly an umbrella policy is all you need.

Wayne Brooks · Answer

Yes, but.....

1 you can’t get an owner occupied loan, or any fha or conventional loan in an llc. 2 you Lise any homestead exemption/yearly cap that may be offered

3 you lose your 121 cap gains exemption when you sell

What you’d gain (as opposed to decent insurance).....

“crickets”

David M. · Answer

@Enrique P.

You could by why?  Search through bp about everybody wanting to make LLC for a variety of reasons.  But, the asset protection trying to be obtained by the LLC comes with a great deal of costs, from a variety of factors.

In your case, if you are going to hold short term or at least live there until you sell, you won’t have the benefit of the sec121 capital gains tax exclusion.

Financing it usually more expensive under LLC since you need a commercial loan, which means all the residential loan products are off the table for you.

The big kicker I always bring up is to achieve and maintain the corporate veil for asset protection, you need to run the LLC as a separate business, separate from your personal activities.  That can be a pain especially needing a separate business bank account, etc.

If you are looking for tax benefits, there aren’t any.  If anything, there is more accounting headache and costs.

Make any sense?  Good luck.

David Gotsill · Answer

Simple answer: you can.  But I'm more interested in what you're trying to accomplish?  What benefit do you think you're getting?  And/or what risks are you avoiding in holding it in your own name?  And what do you mean by house hack?  That expression is used to mean a lot on this forum, most commonly a live-in flip.

Sean Morrison · Answer

Disclaimer: I am an attorney, but I am not your attorney. This is not legal advice, just friendly information.

A few problems you may run into: You will lose your homestead exemption (though I'm not sure that NJ has one). Your lending rate will be higher as it's a commercial loan. As a single-member LLC, you simply won't have the same liability protections.

Can you create an LLC for a multi-family house-hack?

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