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How to Buy a House With an LLC

Byline profile imageWritten by Andrew J. Dehan
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Byline profile imageEdited by Mo Mozuch
Byline profile imageEdited by Arturo Conde, CEPF®
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If you’re considering purchasing an investment property, using a limited liability company (LLC) can be a smart strategy. Buying a property through an LLC offers benefits such as liability protection and potential tax advantages. This approach can help shield your personal assets from legal claims and provide flexibility in managing the property. However, setting up an LLC and securing financing may require extra steps compared to a traditional purchase. Here’s what you need to know about how to buy a house with an LLC and what to consider before making this move.

You can work directly with a financial advisor to help you choose the best route for your business that will have a positive impact on your personal taxes. 

Buying a House With an LLC

LLCs are used for real estate because they protect the property owner from a lawsuit. For instance, if you form an LLC for your rental properties, if there’s an issue and a tenant sues, they won’t be suing you. They’ll be suing the LLC, leaving your name out of it. There may tax benefits to owning a property with an LLC.

First and foremost, you need an LLC. These business structures are governed by states, so each state will have different requirements and fees. Research how to set one up in your state or hire a service to set one up for you. Once you have an LLC set up, you’ll need to finance the purchase. Unfortunately, many mortgage lenders don’t give out mortgages to LLCs. LLCs are ineligible for many types of residential mortgages, such as FHA and conventional loans. There is specific financing available for LLCs. However, there may be more costs associated such as a higher down payment than traditional mortgages.

Another route you can go is to buy the house personally and transfer it to the LLC. There could be extra fees and taxes that come with this option, as well. For example, you may have to pay a deed transfer tax. Also, before considering this option, talk to your mortgage lender. If the mortgage has a due-on-sale clause that would be triggered by the transfer, you would have to pay the full remaining mortgage.

Steps to Buy a House With an LLC

Buying real estate through an LLC takes more planning than a standard home purchase, but the process follows a clear order.

The first step is to legally create the LLC in the state where you plan to operate. This involves filing the required paperwork with your state agency, paying a registration fee, and setting up an operating agreement that explains who owns the company and how decisions will be made.

Once the LLC exists, you’ll need an Employer Identification Number (EIN) from the IRS. Even if the business has no employees, the EIN functions like a Social Security number for the company and is necessary for banking and tax filings.

After that, set up a separate business bank account in the LLC’s name. All money connected to the property—such as rent payments, expenses, and loan proceeds—should flow through this account. Keeping finances separate is what preserves the liability protection of the LLC.

Financing is often the most challenging part. Many residential lenders will not issue mortgages to an LLC, so you may need to look at commercial loans, local banks, or private lenders. These loans can come with higher rates and shorter repayment periods. Some owners buy property in their own name and transfer it into the LLC later, but this approach can trigger extra costs such as deed transfer taxes or a due-on-sale clause in the mortgage.

When you close on the purchase, the deed and title should list the LLC as the legal owner. Be prepared for slightly higher closing costs, since title companies and lenders often charge more when dealing with a business entity.

The work does not end after closing. Most states require an annual filing and fee to keep an LLC active. Accurate bookkeeping, tax filings, and proper documentation are also essential. Staying current on these requirements is what keeps the LLC’s liability shield intact.

Benefits and Drawbacks of Using an LLC to Buy Real Estate

An investor fills out paperwork to create an LLC.

Benefits

Using an LLC to purchase real estate offers several advantages, making it a popular choice among investors, such as:

  • Privacy: If you own a real estate investment business, having an LLC allows you to separate your personal life from your business endeavors. Instead of your name and info on the paperwork, it’s the LLC’s.
  • Tax benefits: LLCs remove the possibility of double taxation. This is also known as a pass-through tax structure. This means the LLC will pay the taxes on profits and you’ll only pay taxes on your allocated share.
  • Easier to partner with other investors: LLCs make it easier for people to partner together for investments. This could be with a single partner, or the LLC can be structured to sell shares to distribute profits.
  • Limited liability: This is the big reason to form an LLC. As the owner of the LLC, you’re not personally liable. The LLC can go into debt or be sued without you having to fear that it will affect you personally.

Drawbacks

There are some drawbacks to consider, as well. For example:

  • Cost: Creating and maintaining an LLC costs money. The fees to set up and maintain an LLC vary by state, but you can expect to pay a few hundred dollars upfront. On top of that, you’ll need to pay yearly filing costs in the neighborhood of $50 to $100.
  • You may not be able to get a mortgage: Many mortgage lenders don’t lend to LLCs due to the risks involved. If the LLC defaults on the mortgage, the lender could lose out. On top of that, Fannie Mae and Freddie Mac loans, as well as government-sponsored loans, like FHA loans, aren’t available to LLCs.
  • Loss of the capital gains tax exemption: Homeowners who profit off the sale of their primary residence don’t have to pay capital gains on the first $250,000 of profit (or $500,000 if married). If the LLC buys the home, it can’t be your residence and you forgo this tax exemption.

The Legal and Financial Implications of Buying a House With an LLC

If you buy a house with an LLC, there are several legal and financial implications you need to be aware of. First, you can’t live in the house that you’ve bought with the LLC. This is what’s known as “piercing the corporate veil,” and if there’s a lawsuit, it can cause the courts to disregard the LLC. The house needs to stay separate from your personal use.

Second, buying a house with an LLC is going to be costly. You have LLC fees, but you also have to finance the purchase. If you’re unable to get a mortgage, you may have to finance in other ways, which could have higher interest rates and shorter repayment periods.

Maximizing Tax Benefits When Buying a House With an LLC

If you optimize your taxes with an LLC, there can be major savings. Properties aren’t taxed directly to LLCs. You’ll only pay taxes on your share of the profits. Also, all LLCs can use depreciation deductions to lower their tax bill further.

To get a full understanding of maximizing your tax benefits when buying a house with an LLC, speak with an accountant. Several LLC structures have different benefits and costs associated with them.

Bottom Line

Before you try to buy a house with an LLC on your own, it's a good idea to consult an accountant or a financial advisor.

Now that you know the basics of how to buy a house with an LLC, you’ll see that it isn’t for everyone. There are a lot of costs associated with it, from setting up the LLC to financing the purchase. However, there are several benefits, such as maintaining your privacy and protecting yourself from lawsuits. You may lose some tax benefits, but depending on the LLC’s structure, you may gain some, too. Before you try to buy a house with an LLC on your own, it’s a good idea to consult an accountant or a financial advisor.

Tips for Buying a Home

  • A financial advisor can guide you through major financial decisions, like the purchase of a home. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Securing a mortgage can be a stressful and confusing process. For starters, you need to figure out what term is best for you, whether you want a fixed or variable interest rate and where to get the best mortgage rates.

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