Buying a House with an LLC: Pros and Cons – and What’s Best For You

Key takeaways:

• Buying a house with an LLC is generally recommended only for experienced real estate investors, not the average homebuyer.
• While you can buy a house under an LLC, the pros and cons to doing so are complex and should be considered carefully. 
• This buying method is most useful for landlords, people who own multiple properties, or public figures who value privacy. 

If you’ve ever rented a home, whether it’s in Wichita, KS or Washington, DC, you may have had an LLC, or limited liability company, listed as your landlord. While this is common for rental properties, some buyers also explore using an LLC to purchase a home.

Buying a home with an LLC can be beneficial in certain circumstances, offering privacy and limiting liability for the owners. However, the drawbacks and complexities associated make this an unappealing process for the average homebuyer. We’ve analyzed the pros and cons of buying a house with an LLC to help you determine whether it’s the right choice for you. 

What is an LLC? 

A limited liability company (LLC) refers to a specific type of business structure. It creates a legal separation between the owner’s assets and the company’s. This means if the LLC owes money or gets into legal trouble, your personal belongings—like your car, savings, or home—are generally protected. Only the money or property owned by the LLC is at risk.

Can you buy a house under an LLC? 

Yes, you can buy a house under an LLC. While this isn’t recommended for the typical homebuyer, it can be a smart option for real estate investors or landlords. 

There are a number of complexities to not only buying a house with an LLC, but starting an LLC itself. It’s important to consider the pros and cons and speak with a tax professional before making any decisions. 

Benefits of buying a house with an LLC

There are several reasons why someone would want to buy a house under an LLC. Some benefits can save you money and offer separation of personal and professional investments. Others might provide privacy or peace of mind for some buyers. 

• Liability protection: As the name states, an LLC limits the liability you can face legally or financially. Rather than being held personally responsible for debts, legal action, or other liability associated with the property, the LLC is the sole entity responsible. 
• More privacy: The LLC’s name is listed on public documents rather than your full name, making it a good option for high-profile individuals or people who purchase high-value homes.
• Tax benefits: LLCs use a “pass-through” taxation system, which avoids double taxation and reduces the overall tax burden on the owner. 
• Separation: Using an LLC keeps your personal assets separate from business assets. In the event of a lawsuit, your personal assets cannot be considered as part of the company. It also helps keep your personal and business lives separate. 
• Easier to invest: Real estate investors who want to manage multiple properties and build a portfolio can consolidate under an LLC, and even invest with multiple other LLCs. 

Drawbacks to buying with an LLC

While generally not recommended for typical homebuyers, there are still drawbacks to consider if buying a house with an LLC is a smarter choice for you. 

• Difficult to get a mortgage: Securing a mortgage for an LLC is more difficult than the average home buying process. Lenders view these as riskier investments, and often require higher down payments and interest rates. 
• Limited financing: There are fewer loan types available for LLCs as they are not typically eligible for regular mortgages, like FHA loans or conventional loans. 
• Personal guarantees: Lenders may require a personal guarantee, a commitment that you will repay the loan yourself if the LLC defaults. This increases your personal liability, eliminating some of the benefits mentioned earlier. 
• Higher costs: In addition to higher down payments and interest, the LLC itself can be expensive. Forming the company can cost between $35 to $500 depending on the state, and some incur annual fees. 
• “Piercing the corporate veil”: This legal concept can be enacted by a court if they find an LLC to be abusing the corporate structure or failing to keep proper separation between personal and business affairs. It makes the owner personally responsible for company debts and obligations. 
• No capital gains benefits: While some home owners selling their primary residence receive benefits on capital gains taxes, an investment property through an LLC precludes you from them. 

How to buy a house with an LLC in 5 steps 

If you’ve considered the pros and cons, and you’re ready to buy a house with an LLC, here are 5 steps to follow:

1. Form your LLC: Check your state’s guidelines, submit the required documents and filing fees, and get an Employer Identification Number (EIN) from the IRS. 
2. Open a business bank account: Maintain a clear distinction between business and personal funds by opening a separate business bank account for the LLC. 
3. Secure a mortgage: Search for a lender with experience with LLCs. Traditional lenders may be more hesitant, but portfolio or asset-based lenders may be a more flexible option to look into. 
4. Purchase a property: Once you’ve found the right property, close on the home using the LLC name, which will appear as the owner on all closing documents. 
5. Get appropriate insurance: In addition to home insurance, be sure to look into liability insurance. This protects the LLC from costs associated with being held legally responsible for injuries or damage on the property. 

Buying a house with an LLC isn’t for everyone

There is no need for an average homebuyer to set up an LLC to buy a house, but there are some cases in which it can benefit you. If you’re making a career out of real estate investing or renting out a home, using an LLC can offer tax benefits and protection from liability. Just be sure to consider the complexities and drawbacks. Speaking to a financial or tax professional before you make any decisions can help you understand the best route for you. 

FAQs for buying a house with an LLC

Can you get a mortgage with an LLC?

You can get a mortgage with an LLC, but it is often more difficult to get approved. Since these are riskier investments for lenders, they often require higher down payments and higher interest rates. 

Who should buy a house with an LLC? 

Experienced real estate investors, owners of multiple properties, and public figures who want privacy from public records are ideal candidates for buying with an LLC. It is not recommended for the average homebuyer, or people who are new to real estate investing. 

Can I buy a house myself and transfer it to the LLC later? 

You can transfer your house to an LLC later, but this can be especially complicated if you have a mortgage. Mortgaged homes that are transferred to LLCs can trigger both a due-on-sale and mortgage acceleration clause, which require immediate repayment of the mortgage. 

What kind of property can you buy with an LLC?

An LLC can purchase a variety of real estate properties, including rental properties, commercial properties, and residential homes. They can also be used to buy fixer-upper homes for flipping if that is part of your business. 

Can I live in a house owned by my LLC? 

Yes, you can, but it’s not recommended for primary residences. There may be complications with mortgage insurance, tax implications, and the potential for a court to “pierce the corporate veil” if your LLC isn’t clearly separated from your personal finances.