A limited liability company, also called an LLC, is a popular legal business entity that helps business owners avoid personal liability due to the business’s activities.
Limited personal liability, tax advantages, flexibility, and privacy protection are what attracts many business owners to create an LLC. But did you know that you can purchase a new home under an LLC?
The same great advantages you enjoy when creating an LLC also apply when you purchase a property with an LLC. In this article, we will explain the benefits of buying property with an LLC and why so many LLC owners are starting to do it.
Let’s get started!
Why Should You Put Your New Home Purchase in an LLC?
Real estate is a great investment to make but like most investments, there are risks that come with it. Successful investors limit risk. That’s why so many people disguise their new home purchase in an LLC. Here are a few advantages of putting a property in an LLC.
Protects From Personal Liability
One of the biggest reasons individuals purchase homes under an LLC is for personal liability protection. For example, if someone breaks their leg at a property titled in your name, they can decide to take legal action against the property owner – meaning you would be liable. Even the property insurance only covers a certain monetary amount.
If the title or deed is in the name of an LLC, then only the LLC is named as the defendant. Only the LLC’s assets are at stake; not you or your personal assets.
Tax Benefits of an LLC Structure
The LLC business structure is attractive for purchasing a house because it eliminates double taxation. This is where profits are taxed at both a business level and personal level. As an LLC, you enjoy a pass-through tax structure, which means the LLC only pays taxes on the profits made – not the owner. However, all LLC owners/members must pay taxes on their allocated share of profits.
Easier to Transfer the Property
Transferring of property to other members as an LLC is simple and often seamless. The LLC’s real estate continues to be owned by the LLC but with the addition of new members.
Purchasing a house under an LLC ensures that the owners’ names do not appear on public documents. Having an LLC allows business owners to replace their name with a corporate or business name, thereby providing privacy and concealing personal information.
Disadvantages of Putting Your Home in an LLC
While limited personal liability, tax advantages, and privacy are all advantages of putting your home in an LLC, there are some drawbacks that homeowners should be aware of.
- LLCs must pay an initial fee after submitting the articles of organization and pay an annual fee to the state in order to renew registration. If you plan to transfer the property, there are also additional costs like recording fees and transfer taxes.
- In some states, you may forfeit tax benefits and drive-up insurance costs.
- It’s typically a good idea to hold a property in the name of an LLC to help limit liability and protect your privacy. However, lenders may require LLC owners to provide a personal guarantee if they’re applying for the very first time.
How to Put Your Property in an LLC
Putting a property in an LLC is a great way to protect your assets and it’s easier than you think. Creating a business may seem overwhelming but you can put your property in an LLC by following these 5 simple steps.
- Talk with your lender – there are several options that a lender can help you work through when trying to purchase or transfer a property to an LLC.
- Create an LLC and include your business plan for purchasing property in the articles of organization. If you’re a new LLC, you will need to obtain an LLC bank account and Tax ID number.
- Determine the deed you need – there are two types of deeds, warranty deeds and quitclaim deeds. Each offers its own protection and has its own advantages and disadvantages.
- Sign and record the deed.
- Review the agreements – whether it’s a new purchase or a transfer, it’s important to review and change lease agreements to ensure protection.
Property owners can transfer their property to an LLC after the closing process.
Is Putting a Property Purchase in an LLC Best for You?
As a business entity with its own income and assets, an LLC can purchase any type of real estate, and for any reason that’s outlined in its articles of organization.
Depending on the state’s requirements and costs of starting an LLC, it may or may not make sense for you to put property into an LLC. For those who fix and flip rental homes, it’s often best to put the property in an LLCs name because of the tax advantages you’ll receive.
If you’re a real estate investor who owns multiple cash-producing properties, it may also make sense for you to use an LLC to buy property. Additionally, if you’re someone who will own the property with others, it’s wise to consider purchasing through an LLC.
If you are unsure if buying property in an LLC is best for you then get in touch with a financial specialist. An experienced lender will be able to clearly identify which option is better for your unique situation.
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