How to Buy a House With an LLC in 2024

Last Updated on September 24, 2024 by Dr. Gabriel O’Neill, Esq.

Buying real estate through a limited liability company (LLC) is a common choice for those looking to reduce liability, protect their personal identity as a homeowner, or keep business and personal finances separate.

In this article, we’ll break down how LLCs operate, the steps to purchasing a home through an LLC, and the advantages and disadvantages of using an LLC for real estate purchases.

What Is an LLC?

An LLC is a type of business entity that combines elements of both a corporation and a partnership. LLCs are popular among small businesses because they offer many of the benefits of a corporation. This includes limited liability protection for the owners (also known as members), while also offering the flexibility and simplicity of a partnership.

In an LLC, the members are not personally liable for the debts and obligations of the business. This means that if the LLC incurs debt or is sued, the personal assets of the members, such as their homes or personal bank accounts, aren’t at risk. LLCs also offer flexibility in terms of management structure and taxation options.

If you are ready to register your business as an LLC, use Northwest Registered Agent.

Should You Buy a House With an LLC?

Deciding whether to purchase a house with an LLC depends on your specific circumstances and goals. It’s generally a good idea to consider purchasing a home with an LLC. Especially if you are buying the property as an investment or as a rental property. 

By purchasing the property through an LLC, the owner’s personal assets, such as savings, investments, and other property, are generally shielded from any legal or financial issues that may arise with the property. This can provide peace of mind and financial security for the owner.

However, it’s important to keep in mind that setting up and maintaining an LLC can be a complex and time-consuming process. Thus, it may not be the right choice for everyone. It’s always a good idea to consult with a legal or financial professional before making a decision about purchasing a home through an LLC.

How to Buy a House Through an LLC?

Setting up an LLC

Among the numerous business structure types, there are several types of LLCs to choose from. For example, single-member LLCs and multi-member LLCs. You should consider the specific needs of your business, as well as any tax or legal implications when deciding which type of LLC is right for you.

In order to form an LLC, you will need to file articles of organization with your state’s business filing office. This will typically require you to provide information about your LLC, such as your business name, purpose, and members. You will also need to obtain an Employer Identification Number (EIN) from the IRS. They use this number to identify your LLC for tax purposes.

Financing the Purchase

There are several options for financing the purchase of a house through an LLC, including a mortgage or cash. It’s important to carefully consider your options and choose the one that makes the most sense for your situation. You may also want to consider working with a lender who has experience with LLCs and real estate purchases.

Improve your chances of getting approved for a loan by keeping track of a few important things. This includes making sure your credit score is as high as possible, having a down payment saved up, and being able to show proof of income and employment. 

Finding the Right Property

A real estate agent or broker can help you find properties that meet your criteria and assist with the negotiating process. You should also carefully consider the location, size, and condition of the property. This also includes your budget and any other specific needs or preferences you may have.

Once you have found a property you are interested in, you will need to make an offer and negotiate the terms of the sale with the seller. This can involve discussing the price, closing costs, and any contingencies or conditions that you will have to meet to complete the sale. 

Protecting Your Investment

It’s important to have the property inspected by a professional to ensure it meets your standards. This also helps to identify any potential issues that need addressing.

Moreover, title insurance protects against any issues with the property’s title, such as liens or encumbrances, that could affect your ownership of the property.

Closing on the Property

Once you have completed all the necessary steps, you will transfer the deed to the property to the LLC. It’s important to establish proper record-keeping and financial management practices for the property to ensure that it’s being properly maintained and managed. 

This may include setting up a separate bank account for the property, keeping track of expenses and income related to the property, and ensuring that you make any necessary insurance or tax payments on time.

Pros and Cons of Buying a House With an LLC

There are both pros and cons to buying a house through an LLC. Here is a summary of the potential pros and cons.

Pros

Investors Can Easily Find Partners

An LLC can make it easier for real estate investors to find and partner with others. As an LLC can have multiple members, it provides a convenient structure for investors to jointly own and invest in properties. 

This can be particularly useful for seasoned investors who are looking to expand their portfolios through partnerships.

To Protect Your Privacy From the Public

You may consider purchasing a house using an LLC if you want privacy. This can help keep your name out of public records associated with the property, as county records often list the names of homeowners. 

If you are a public figure or want to keep your address private, owning a home through an LLC can prevent others from easily finding your residence through a search of county records. You can use an anonymous LLC to buy a property and keep the ownership hidden.

Limited Liability Protection

One of the main benefits of buying a house with an LLC is that it provides a layer of protection against personal liability. This means that if the property experiences any type of difficulties, the owner’s personal assets (such as savings accounts and other real estate) are generally not at risk.

Separation of Personal and Business Finances

Using an LLC to purchase a house can also help to separate your personal and business finances. This can be beneficial for tax purposes and for keeping your personal and business assets separate.

Potential Tax Benefits

There may be tax benefits to using an LLC to purchase a house. This depends on the specific circumstances of your situation. For example, an LLC may be able to take advantage of certain deductions or credits that aren’t available to individuals.

Estate Planning

Using an LLC to purchase a house can also be a useful tool for estate planning purposes. This is because it allows you to transfer ownership of the property to your heirs in a more organized and tax-efficient manner.

Cons

More Cost

Setting up and maintaining an LLC can be more costly than buying a house as an individual. This includes costs such as filing fees to form the LLC, annual fees to maintain the LLC, and potentially higher legal and accounting fees.

Challenges Getting a Mortgage

Some mortgage lenders may be hesitant to lend to an LLC. Particularly, if the LLC is a newly formed entity with no credit history. This can make it more difficult to obtain financing for the purchase.

Capital Gains Tax

If you later sell the property, the sale may be subject to capital gains tax. This tax may be higher for an LLC than for an individual. This depends on the tax rate for the LLC and the individual’s tax rate.

Limited Financing

In some cases, an LLC may not be able to obtain as much financing as an individual. This could be because lenders may be more conservative in lending to an LLC.

Piercing of the Corporate Veil

If the LLC is sued, the personal assets of the owners of the LLC may be at risk if the “corporate veil” is “pierced.” This means the court finds that the LLC was not being treated as a separate legal entity and the members are personally liable for the LLC’s actions.

This is more likely to happen if you are not operating your LLC in a business-like manner, if the LLC does not have sufficient capitalization, or if the LLC is not following proper corporate formalities.

Can You Transfer a Property You Already Own to an LLC?

Yes, it’s generally possible to transfer ownership of a property that you already own to an LLC. We know this process as a “property transfer.”

To transfer ownership of a property to an LLC, you will typically need to execute a deed transferring the property from your individual ownership to the ownership of the LLC. A real estate attorney should prepare the deed. They should include the necessary legal descriptions of the property and the names of the parties involved in the transfer.

It’s also worth noting that transferring ownership of a property to an LLC may have implications for any mortgages or other debts associated with the property. You should carefully review any loan documents and consult with a financial advisor or attorney to understand how the transfer may impact your debts.

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Conclusion

Buying a house through an LLC offers several advantages, such as liability and asset protection for the owners, along with potential tax benefits.

However, purchasing a home with an LLC can be more complicated than buying as an individual. You might face additional costs and challenges, particularly with securing financing and transferring property ownership.

In summary, while the process of buying a home through an LLC can be complex, careful planning and attention to detail can provide valuable asset protection and help ensure a successful real estate investment.

For more information about LLCs, read our article on how to start an anonymous LLC.