A Guide to Buying a House With an LLC

Homes, Investment Properties & Second Homes, Long-Term Rental Properties

While most people buy a house under their own name, there are those who choose to purchase real estate with a Limited Liability Company (LLC).

Buying a house under an LLC is something you might consider if you want to limit your liability exposure, conceal your identity as a homeowner or separate your business and personal finances.

Let’s discuss how LLCs work, the process of buying a house with an LLC and the pros and cons of purchasing a home with one.

What Is an LLC?

The acronym LLC stands for Limited Liability Company, and it’s a way to structure business ownership. Liability is the legal obligation to do something. This usually entails paying someone else for debts, damages or injuries. As the name suggests, LLCs limit liability, which is one of the primary advantages of buying a house using an LLC. 

LLCs are regulated by each individual state, though most states allow plenty of flexibility within LLCs – from tax structure to the number of members. LLC owners are known as members. They can be a single individual, several individuals, corporations or even other LLCs.

So how do you go about buying a house with an LLC? 

How To Buy a House With an LLC

Now that you know you’re able to buy a house with an LLC, and understand some of the advantages, how do you actually go about taking the next steps?

First, you’ll have to create an LLC, which you can do by filing the appropriate state paperwork and paying applicable fees. Getting your LLC application approved usually takes a couple weeks, with exact times varying by state.

Once your LLC is official, the easiest way to buy a house with that LLC is to name the business as the buyer on the purchase agreement and pay for the property in cash.

If you want to take out a loan to buy a house with an LLC, you have some options, but they might be trickier.

Can you get a mortgage with an LLC?

Asset-based lenders and other private lenders are usually more willing to give you a loan than a bank. Although, these loans tend to come with high interest rates and are better for short-term needs, such as house flipping. 

You may be able to get a mortgage under your LLC from a traditional lender, provided you’re willing to accept a higher interest rate, make a larger down payment (at least 20% – 25%) and offer a personal guarantee on the loan in certain cases.

What happens when you buy a house with an LLC?

When you buy a house using an LLC, the property is tied to that business. So if something happens to the house, the business is on the hook, not you personally. However, if you agree to a personal guarantee on a mortgage, you could “pierce the corporate veil” by mixing your LLC’s finances with your personal finances.

The corporate veil separates you from your business, identifying each as discrete entities. But if you make a personal guarantee with your own credit and finances, you’ll likely lose the personal asset protections under your LLC ownership. In this instance, if someone files a lawsuit against you, it could negatively impact both you and your LLC.

Why buy a house with an LLC?

People who use LLCs to buy a house are often real estate investors, celebrities or business owners seeking to limit liability, increase privacy or avoid double taxation.

Can I live in a house owned by my LLC?

Absolutely. Living in a home owned by your LLC can help preserve your privacy by keeping your name off public real estate records. But it’ll come at the expense of certain tax advantages, like the Internal Revenue Service (IRS) exclusion on capital gains tax when you sell the home.[1]

What Are the Drawbacks and Benefits of Buying a House With an LLC?

Companies and individuals alike can enjoy the benefits of buying a house with an LLC. However, choosing to own your home under an LLC’s name may come with some disadvantages, too.

Many of the benefits and drawbacks of buying a house with an LLC depend on what you’re planning to use the house for. Are you looking to invest in real estate for passive income? Or maybe you want to flip the house for a profit while avoiding the risk of getting personally sued.

Whatever your reason for wanting to buy a house with an LLC, you should understand the pros and cons before deciding if it’s the right decision for you.

Easier for investors to find partners

For seasoned real estate investors, an LLC can simplify property ownership. An LLC can have multiple members. So if you want to partner with others to invest in real estate, an LLC makes it easy and convenient to do so.

Privacy from the public eye

Buying a house with an LLC means you can keep your name off public records associated with the house, since county records can publish the names of property owners. So if you’re in the public eye, owning your home under an LLC can prevent people from finding your address with a simple search of county records.

Ownership under limited liability

If you’re a real estate investor with multiple rental properties, you might own each house under a different LLC to minimize your liability exposure. LLCs offer liability protection to shield owners from personal exposure to lawsuits. For example, if someone gets injured on the property and sues the LLC, its members and their personal assets will be safe from judgments against the LLC.

Keeps business and personal separate

Besides limiting your personal liability, buying a home with an LLC can help you keep your business affairs in order and separate from your personal life. If you have personal debt, for instance, your creditors won’t be able to claim assets belonging to your LLC.

When you own a house under an LLC, it’s also easier to keep track of expenses, income (if it’s a rental property) and taxes.

Avoid double taxation

If you own a business, it’s possible your corporate structure could have you paying taxes twice. An LLC simplifies that aspect of taxation, so you can avoid the risk of double taxation.

Double taxation occurs when a corporation is taxed at the collective level, and then its members are taxed a second time, on an individual level. LLCs are known as pass-through entities, which means you’ll only be taxed once, at the personal level.[4] An LLC can also simplify organizing tax write-offs on investment property for repairs and other eligible deductions.

More cost

Buying a house with an LLC can cost more than buying a house under your own name. Creating a new LLC or maintaining an existing one costs money. And if you’re taking out a loan under your LLC to buy the home, expect a higher interest rate and additional fees.

Challenges getting a mortgage

While some mortgage lenders will finance your home purchase with an LLC as the borrower, getting approved for a mortgage under your LLC can be challenging. Many common mortgages, such as conventional loans sold to Fannie Mae and Federal Housing Administration (FHA) loans, aren’t available to entities like LLCs.[2][3]

Incurring capital gains tax

When you sell a house you’ve personally owned and occupied for a profit, the IRS allows you to exclude up to $250,000 ($500,000 if married and filing jointly) of capital gains from your income tax.[1] Unfortunately, you won’t be eligible for that tax benefit with an LLC. So if you sell your home, prepare to pay capital gains tax on every dollar of profit over what you originally paid for the property.

Frequently Asked Questions

What are asset-based lenders?

Asset-based lenders offer loans that are secured using an asset as collateral. Examples of collateral used to secure an asset-based loan include everything from real estate to business inventory or machinery.

Can I transfer my mortgage to an LLC?

You can buy property in your name and then transfer it to an LLC after the fact, but doing so may have consequences. First, you’ll have to pay applicable fees to transfer the title. If you have a mortgage, you could trigger a due-on-sale clause by transferring ownership from yourself to an LLC. Moving the title of a home from your own name to an LLC can also have implications for your insurance coverage and taxes.

Can I buy a house with my EIN number?

It’s possible to buy a house by taking out a loan with your Employer Identification Number (EIN). Keep in mind that your EIN number can only be used to serve business needs,[5] so you shouldn’t use an EIN number to buy a house you want to live in.

Consider Your Goals, Weigh Your Options

You can certainly buy a house with an LLC. But before you do, think carefully about what you want to accomplish. Are you prepared to take on extra costs and limit yourself to fewer financing options? If you sell the home, are you willing to give up the capital gains tax breaks? Only you can answer these questions and decide if buying real estate with an LLC is right for you.

  1. Internal Revenue Service. “Topic No. 701 Sale of Your Home.” Retrieved October 2022 from https://www.irs.gov/taxtopics/tc701

  2. United States Department of Housing and Urban Development. “Section A. Borrower Eligibility Requirements.” Retrieved October 2022 from https://www.hud.gov/sites/documents/4155-1_4_SECA.PDF

  3. Fannie Mae. “Servicing Guide.” Retrieved October 2022 from https://selling-guide.fanniemae.com/Selling-Guide/Origination-thru-Closing/Subpart-B2-Eligibility/Chapter-B2-2-Borrower-Eligibility/1032991671/B2-2-01-General-Borrower-Eligibility-Requirements-09-02-2020.htm#General.20Borrower.20Identity.20Criteria

  4. Internal Revenue Service. “Another Look at Limited Liability Companies in Light of the TCJA.” Retrieved October 2022 from https://www.irs.gov/pub/irs-utl/2019ntf-06.pdf

  5. Internal Revenue Service. “Online EIN: Frequently Asked Questions.” Retrieved October 2022 from https://www.irs.gov/businesses/small-businesses-self-employed/online-ein-frequently-asked-questions

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