Can I Live in a House Owned by My LLC?

Many real estate companies and property owners choose to form limited liability companies (LLCs) due to benefits like liability protection. As a business entity, an LLC can buy and own real estate. But can an LLC owner, or member, live in a home owned by their LLC? 

The short answer is yes, but there are several key concerns to be aware of before doing so. Read on to learn all the benefits and drawbacks of living in a house under your LLC.

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 taxes. 
2. LLC financing tends to be more complicated to obtain 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. 

Summary

Owning a home under your LLC can have several benefits. You may also live in that home as long as it’s clearly stated in your LLC’s operating agreement. However, it’s important to consider the pros and cons before making a final decision. 

It’s recommended that you consult with an attorney or tax professional to determine whether this is the right move for you and your business.