How to Buy a House Under an LLC - How to Start my LLC

How to Buy a House Under an LLC

Written by:

Carolyn Young has over 25 years of experience in business in various roles, including bank management, marketing management, and business education.

Reviewed by: Sarah Ruddle

For over 15 years, Sarah Ruddle has been a noteworthy leader in the business and nonprofit world.

How to Buy a House Under an LLC

How to Buy a House Under an LLC

If you have a limited liability company (LLC), you may consider buying a home in your LLC’s name. Doing so has several benefits, but it also comes with many potential concerns. 

Fortunately, this handy guide lays out all the details to help you decide if buying a house under your LLC is right for you. 

Benefits of Buying a House Under an LLC

  1. In some states buying property under an LLC offers tax exemptions.
  2. Buying a property in the name of an LLC adds value to the business.
  3. The LLC offers liability protection for the property, which cannot be seized by your creditors or to pay obligations from a personal lawsuit. 
  4. Buying a house under your LLC can give you a level of privacy, as your name will not be associated with the purchase or ownership of the property.

Drawbacks of Buying a House Under an LLC

  1. You cannot deduct the mortgage interest for the home from your personal taxes. 
  2. LLC financing tends to be more complex than a personal loan, and lenders often charge businesses a higher interest rate. 
  3. Buying your home under an LLC could be seen as commingling business and personal assets, which can threaten your liability protection.
  4. If your LLC has members other than you, you may have to sell the house and distribute the proceeds proportionally to all members if you go out of business and the LLC is dissolved. Again, you’ll need to address this issue in your operating agreement.
  5. If your LLC is ever sued or unable to pay its debts, the home you purchased under the LLC name would be at risk. 

Financing a Home Purchase Under an LLC

You’ll need to use funds from the LLC to pay for the purchase, including the down payment and closing costs. If you don’t, home ownership may be unclear, and liability protection could be at risk.

Remember that financing tends to be more challenging for an LLC, particularly if your business has no credit history. Also, some types of loans, such as FHA loans, are available only to individuals. 

One solid option is the LLC loans offered by the federal Small Business Administration or SBA. Do some research to find the best loans for your LCC and work to build your business credit history. 

Transferring a House to an LLC

Rather than purchasing real estate under the LLC name, you could transfer a home you own to an LLC. However, if you have a mortgage on the property, a transfer could trigger the loan’s due-on-sale clause because you’ll essentially be selling your home to the LLC. 

This means the LLC would likely have to pay the balance due on the mortgage loan – and presumably take out a new loan. As discussed above, getting a loan for an LLC is often challenging. 

In Closing

Buying a house under an LLC has its pros and cons. It’s a move that might work great for some business owners, while for others, it’s probably not the best idea. It’s a good idea to consult your tax advisor and attorney to see if it’s right for you and your business. 

They can explain all the implications, and your attorney can help amend your operating agreement, if needed, to protect you and your LLC.