The Ultimate Guide to Buying Property as an LLC

By: ROS Team

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Business owners must consider how they can protect their businesses before launching them. This also holds true in the world of real estate. If you are working on a legal structure for your property investments, it would be in your best interest to maintain a separate entity for legal and tax purposes. The legal structure you choose will have an impact on your business and the assets acquired from your real estate transactions.

1- What is an LLC
2- Advantages
3- Disadvantages
4- Buying Property as an LLC
5- FAQs

The most common way real estate investors accomplish this is by using limited liability companies (LLCs). LLCs can give investors confidence in knowing that their assets are protected. If you are new to real estate investing, you’ll first want to educate yourself on what an LLC is.

What is an LLC?

An LLC is a company or business structure owned by one or more individuals or entities. LLCs do not pay taxes per se; instead, the LLC tax structure treats profits like “pass-through” income. In other words, net losses or profits are passed through to each LLC member and taxed as part of their individual federal tax return.

The exact structure of how LLCs are formed may vary from state to state. LLCs can have multiple members like a joint venture formed among different groups to invest in rental real estate, or it can consist of one person who runs a single-member LLC.

Advantages of Having an LLC

The primary question that arises from buying a house under an LLC is why people do it. There are some key advantages of buying property as an LLC.

1) Maintains Privacy

If privacy is your concern, then LLC is your best option since the owner listed in public records will be the company’s name and not the owners’. Members of the LLC are usually not listed in these documents, which keeps people out of situations where property ownership could be damaging or embarrassing.  It ultimately enhances the owner’s privacy.

2) Legal Protection

In addition to privacy, LLCs provide some level of protection in the event of a lawsuit. If you own rental property, you probably never think about your tenants or their guests falling victim to injury or, even worse, death while on your property. But, if it happens, legal damages would be assessed against the owner’s property and not the owner’s personal assets.

LLC Legal Protection

3) Pass Through Taxation with LLCs

The pass-through taxation aspect of LLCs is another benefit of LLC. Some people even consider it the primary reason for starting an LLC to buy real estate. It simply means that the company avoids the double taxation typically they are subjected to pay. What happens is that the Internal Revenue Service (IRS) considers LLCs as partnerships or sole proprietorships. It depends on how many members the business has.

So, from that prism, sole proprietorships are taken as disregarded entities. It means that the loss and profit of the business are passed through to its owner. Owners’ pass-through entities have to pay only personal taxes on the income of the company.

In contrast, the company itself doesn’t have to pay and therefore has no responsibility for taxes. Multi-member LLCs can also take advantage of pass-through taxation. One additional requirement is that every member has to file Form 1065 or K Form when they file their income taxes. It identifies the shares of losses or profit they got from an LLC as still LLC itself is not responsible for taxation.

limited liability companies

Disadvantages of Having an LLC

So far, you might have been seeing the brighter side of buying property as an LLC; there are also some drawbacks.

1) Financing Can Be Difficult

Getting finance is often the primary requirement of many prospective homeowners, and they also seek programs like FHA loans. FHA loans require a smaller down payment on a property. That’s why most people try to acquire them. The major drawback of buying an LLC is that these loans are offered to individuals and not companies.

2) Cannot Take Benefit of Tax Breaks

Individuals can also enjoy lower interest rates. Perspective owners may also enjoy the tax breaks on their primary-residence mortgage. An added benefit is that you can deduct the mortgage from your income. So, if an LLC owns the property, individuals cannot enjoy those tax breaks.

3) Personal Liability Doesn’t Go Away

Another drawback is that it becomes hard to separate business from personal affairs when purchasing a home under an LLC. Although you might choose to maintain your personal and investment spheres separately using different email addresses, bank accounts, and credit cards, it is still tempting to leverage the benefits that come with owning a home as an LLC.

So you must be disciplined and draw a clear line between the personal and the LLC. And, of course, some co-op boards in apartment complexes appreciate the idea of individual ownership rather than ownership by an LLC. So you might experience some pushback when you go to purchase a co-op through an LLC.

However, it depends on where you are looking to purchase. Traditional and more established neighborhoods typically don’t encourage the idea of mixing home-owning with business, while newer and developing communities are more open to having different financial structures in the same neighborhood.

Buying Property as an LLC

One major issue when buying property as an LLC is a bank.  Banks usually don’t feel comfortable loaning large sums of money to a new LLC. They fear the legal ramifications should the LLC owner face an issue and be unable to pay back the loan.

An easy solution to this problem is to get a home mortgage in your name. Once you get the mortgage, then you can transfer the property to the LLC. The home loan will remain in your name. This keeps banks from having to deal with unsecured money and, at the same time, it protects the property.

LLC Used in Real Estate

FAQs About Buying Property as an LLC

How are LLCs Used in Real Estate?

In real estate, investors use LLCs as a tool to buy and hold real estate investment properties. Different investors use different types of LLCs as well as for different purposes and motivations. Some may use them for legal or financial protection, tax minimization, or flexible membership. It depends on your situation if these benefits are relevant to you or not.

Can an LLC Get a Mortgage?

If you’re considering making real estate investments and looking for mortgage lenders who finance LLCs.

There are a few things you need to take into consideration:

  • Look for lenders who are considered investor-friendly;
  • Understand your limits in terms of available lending options;
  • When you take out multiple loans at the same time, credit requirements become stricter; and
  • You should make sure you have plenty of working cash.

Most of the time, lenders won’t give you more than four loans at a time. Take some time researching lenders who will allow you to carry as many as ten at a time. Fannie Mae will allow borrowers to have up to 10 loans at any given time. There may be others that offer a similar arrangement.

When looking for mortgage lenders for LLC, you must build a solid finance team. Lenders play a vital part in the team, and you should seek assistance from mortgage brokers if you plan to buy property as an LLC.

If you are a more serious investor and plan to build a portfolio of rental properties, you should directly approach lenders and request a financing plan.

Ask the Following Questions before Getting Along with a Specific Lender:

  • How many loans are you able to offer to investors, and what is the loan limit?
  • Are you working with any investors right now?
  • Do you own any of your rental properties personally?


Don’t discount the importance of a good credit score. Many people don’t know this, but it plays a major role when shopping for a lender. As a general rule, you’ll need a credit rating of 630 or higher if you currently have 1 – 4 loans. You’ll need a credit rating of 720 or higher to be considered for additional loans if you currently have 5 – 10 active loans.

In addition to all this, maintain enough cash to make a down payment to help increase the likelihood that you’ll get approved for a loan. If you have outstanding loans on properties, you should also have a cash reserve of up to six months for each property.

What Documents Lenders Ask for Financing a Mortgage Under an LLC

To be considered for a mortgage under an LLC, you have to show proof to the lender that you own a legit business.

Lenders typically ask for some combination of the following:

  • Official documentation from the Corporation Commission or Secretary of State’s office. The documentation should confirm that annual fees are paid in full and all documents have been appropriately filed.
  • Articles of Organization and an Operating Agreement for your LLC, which should include information on all shareholders.
  • Bank account information for the LLC, particularly the current and average balance and the history of deposits and withdrawals.
  • The LLCs employee identification number (EIN). This reflects that the IRS recognizes your LLC for federal tax purposes. It is required even if you don’t have employees.
  • Rental property information and history, including payment history, profit and loss statements, and tenant lease, etc.
  • The credit information for each LLC shareholder.


When Does it Make Sense to Use an LLC?

Well, to be straight, there are no fixed rules here. Generally, it makes sense for those investors who operate multiple cash-flowing properties. In addition to it, using an LLC to buy property suits those co-owners who own property with people they don’t know but are comfortable in paying fees to a management company for managing property.

You may use LLC to buy and hold real estate but there are responsibilities and costs attached to forming and operating LLC. Additionally, there are account reporting requirements and periodic tax. If you fail to comply with them, it may undermine the intended benefits and may carry legal implications as well.

Can You Transfer an Investment Property You Own to an LLC?

If you already own property clear and free, transferring it into your LLC is easy. A real estate attorney can set this up on your behalf. Though, you need to be careful if you are planning to buy real estate, get a mortgage in your name, and transfer it into an LLC later on.

Most of the time, mortgages have “due on sale” clauses. These clauses may create complications when you as an individual are no longer the official owner of the property. The last thing you wish to face is that your entire mortgage becomes due right away when you transfer your property to an LLC for legal protection.

In this regard, one adjustment you can do is to set up an LLC for paying expenses and collecting rent while keeping the ownership to your name. You will get the legal protections of the LLC when you ask tenants to pay their rent to your LLC.

Note: Don’t take this as final advice. Instead, consult with your real estate attorney to get to know the legal implications of your investment property ownership structure.

Final Thoughts

If the circumstances are right, it is beneficial to buy a house under an LLC.  But, at the same time, it’s also essential to be realistic. When you’re buying real estate, an LLC may not protect you from all liability, and you will be liable for anything not protected under the entity.

It’s also essential to know and understand the lenders’ requirements as well as which lender is best suited for your business structure. Also, consider some of the challenges of getting funding as a new LLC with no credit or income history. If you approach the process knowing all the ins and outs, you can successfully manage multiple real estate investments at the same time.

Read Also:

LLC for Real Estate Investments
Quick Guide For Creating An LLC For Your Rental Property