Last updated: March 14, 2023

Buying property can be a complicated process. Why not take the headache out of it by purchasing your next home under an LLC?

You could even buy multiple properties for investment purposes or provide rental income.

The cons of buying property under an LLC are sparse, but the benefits are tremendous.

This article will explain why you should consider this option when it comes time to purchase your next home.

How Does LLC Protect Real Estate Properties?

Miniature house of an real estate property that is LLC protected

A limited liability company (LLC) is a legal business structure that protects the members of an LLC from personal liability, much like shareholders in a corporation do.

However, LLCs are not as subject to double taxation as some corporations are.

The liability protection provided by incorporating your real estate investments through an LLC can be greater than the limited liabilities offered by other types of corporations.

This benefit could allow you to invest more money without risking it if something goes wrong.

The personal assets of a business owner can be protected from liability claims in a limited liability company.

A qualified LLC is organized under the relevant state laws and regulations such as an LLC operating agreement, articles of organization, and other similar legal documents.

Doing so can obtain all the benefits offered by state law to protect its members against business debts or liabilities arising outside the course of business operations.

LLC is not a corporation, so it does not have the same formalities as corporations do.

This means that you can open LLC accounts at checking institutions just like individuals and obtain all standard business-related bank services available to other small businesses.

Also, LLC members are protected against personal liability for business debts or contractual obligations under state law.

Incorporating real estate through an LLC can provide limited liability protection to the investor and tax benefits such as pass-through taxation, which allows all profits and losses of a business to be passed on directly to its members, who then report this information on their personal income tax returns.

Here are the top reasons why becoming a property owner under an LLC is a good idea.


A padlock close up image

Limited liability companies that decide to purchase real estate to operate their business are often faced with buying in their name or through an LLC.

It is important to consider buying property under an LLC for many reasons, including protecting yourself from legal liability and maintaining your privacy.

The first reason that it can be helpful to purchase real estate using an LLC is that it can be a way to protect yourself from personal liability.

When you purchase real estate under an LLC, the property purchased is owned by the business entity and not you personally.

If something goes wrong with your business or someone sues your business, they are only pursuing LLC's assets instead of going after your personal assets.

This is a very good way to protect yourself and the company's assets.

The second reason that buying under an LLC can be helpful is that it helps maintain your privacy and the privacy of those who work with you.

There are no names attached to any particular properties or business dealings when using an LLC because all property belongs to the LLC and not to you personally.

Asset Protection

Close up image of assets

LLC owners who buy real estate under their LLC can protect themselves from any liabilities that may arise.

For example, an asset protection strategy would be breached if the buyer personally borrows money to finance real estate purchases and then defaults on these loans.

However, when a limited liability company owns real property, this risk is minimized since the real estate is separate from the LLC owner's personal assets.

In that way, if a lawsuit arises and results in a judgment against the buyer personally, creditors cannot seize his real property since it does not belong to him; rather, it belongs to the LLC of which he owns shares.

This also means that while an LLC protects real property ownership, real estate investors can still be held personally liable for any business debts or liabilities that the LLC incurs.

An example of this would be a real estate investor who uses his personal bank accounts or credit card to make payments from his LLC account and defaults on these charges.

In this situation, he would have breached both asset protection and the corporate veil.

Tax Exemption

Close up image of a calculator with TAX word

Tax advantages of owning investment property are huge. Depending on where you live, your investment can be tax-free in some cases when held under an LLC owned by multiple people.

Property owners who own real estate through a limited liability company or any other entity that is not taxed as a corporation receive this benefit regardless of whether the LLC has employees or operates out of a brick-and-mortar building.

The benefits of investment property ownership through an LLC are that the owner can lease out real estate to another party for rent and exclude all rental income from taxation under the Unrelated Business Taxable Income code.

The Internal Revenue Service will not consider this self-employment or investment income since the LLC owner provides no services.

Rental properties held in an LLC also benefit from depreciation deductions.

There are other tax exemptions that real estate owners can take advantage of when they hold their properties through a limited liability company or any other entity that is not taxed as a corporation, such as:

  • The IRS will not consider this rental income and gains on the sale of investment property held within an LLC for taxation
  •  Depreciation deductions are allowed on the property, even if an LLC owner does not rent it out.
  • An individual can exclude all capital gains from selling investment properties held within an LLC.

Related Article: Transferring Real Estate Into an LLC


Does LLC Debt Count Against Mortgage?

Banks know that LLC members are not held personally liable for the LLC's debts, which is why mortgage lenders extend a mortgage loan to an LLC only if the business owner has mortgage insurance or gives a personal guarantee.

How Do I Transfer My Mortgage to an LLC?

To transfer a mortgage to an LLC, you need to obtain a Quitclaim Deed Form, record it and change your lease.

Of course, you need to have an LLC in good standing with the state and has its own EIN and a separate bank account.

Can LLC's Get Residential Mortgages?

Yes, lenders allow LLCs to get residential mortgages but keep in mind that they will ask for the same financial documents as applying for a mortgage in your name.

Mortgage lenders for LLCs will ask for your individual credit score, income, and debts.

How Many Mortgages Can an LLC Have?

In most states, banks restrict the number of mortgages LLC can have to five.

However, there is no limit on the number of mortgages an LLC can hold with lenders.

This is good news for borrowers planning to use a home loan as part of their investment strategy because it means they have flexibility in how many loans they want to take out.

Can an LLC Be Named Insured on a Homeowners Policy?

It depends on the insurance company. Some will allow a company to be the named insured on an insurance policy, but some won't.

Suppose you want your LLC or Corporation to be listed as the owner and additional insured on any of your policies (homeowners, auto, umbrella). In that case, you should contact them directly.

Can I Sell My Rental Property to My LLC?

It depends on the state where you're forming an LLC. Some states allow you to sell your LLC interest in a company, while others don't.

It is best if you talk with an attorney about the laws of your state and seek legal advice before forming your LLC.

If you sell the property to an LLC, the sale will be subject to capital gains taxes (unless it is owner-occupied or used in a business).

Can an LLC Get FHA Loans?

You can. But keep in mind that you can't obtain financing in the LLC's name. Instead, the LLC will be used as the guarantor of the loan.

So it is you, personally, who would get approval for an FHA-insured mortgage from a lender.

Can a Foreign LLC Own Property in Another State?

Yes. However, some states require foreign entities to file additional paperwork to acquire property within their state.

You will have to register the LLC with the Division of Corporations or a corresponding government agency within the state.

Can an LLC Sell a Property?

LLCs can sell real estate, but you should know the rules before doing so. While it is legal for an LLC to sell real estate, this can be challenging in some states.

LLCs are considered separate entities from their owners and managers; therefore, all transactions must adhere to certain regulations.

The sale of property by an LLC falls under state laws that determine how business can be conducted.

The first step is to research the state laws of your LLC by contacting a law firm or searching online for relevant information.

Can an LLC Get a Portfolio Loan?

Yes. A real estate portfolio loan is a mortgage against more than one property.

When you apply for the personal loan, your lender will look at all the properties in your LLC and not just what they can see on the title.

The whole picture counts when it comes to getting a great rate.

For example, suppose you're buying a single-family home for $200,000, and the property title shows that it's in your name but has an LLC with another house of lesser value on it (like a vacation home).

In that case, the lender will count all three properties toward loan eligibility.

Is an LLC Good for the Real Estate Business?

LLC structure is good for real estate business because it LLC limits the liability of its members. It can shield them from lawsuits or other legal actions taken against the LLC itself.

For example, if you are a member of an LLC that owns commercial real estate and someone gets injured on your property, they cannot sue you personally for their medical bills.

Buying Property Under an LLC: Conclusion

If you're considering buying property under an LLC, it's important to consider all of the ongoing costs, legal fees, and implications that come with this decision.

A qualified lawyer can help guide you through your options and provide counsel on how best to mitigate risk when purchasing a home or other piece of real estate in another name, especially when business finances are at stake.

It is unnecessary for every business transaction; however, if there are any foreseeable risks associated with the real estate purchase, it may be in your best interest to consult with a professional before proceeding.

You May Also Like

Leave a Reply

Your email address will not be published. Required fields are marked *