Can My Business Buy My House? A Guide to Buying a House With an LLC
Whether you already own several properties, or you’re a first-time homebuyer, protecting your assets is a serious consideration before purchasing a home.
You may be asking yourself, “Should I use my personal credit, or can my business buy my house?”
This isn’t an uncommon question. It’s something we get asked by homebuyers all the time.
In this guide, we explain how to buy a house through your business and share everything you need to consider before you make the transaction.
Table of Contents
- Can I Use My LLC to Buy My House?
- Does it Make Sense to Buy a House Through Your Business?
- 4 Advantages of Buying a House With an LLC
- 4 Disadvantages of Buying a House With an LLC
- Looking to Buy a House Through Your Business? Peggy Hoag Real Estate Is Your Source for Luxury Homes in Oregon & Washington
Can I Use My LLC to Buy My House?
Yes. Your LLC — Limited Liability Company — is an excellent option for purchasing a home.
An LLC protects your personal assets, which is the principal reason why one may consider this option. However, not every LLC has the capability of buying property. Check that the articles of incorporation allow such purchases.
Just because you can purchase a home with your LLC, doesn’t mean you should.
If you’re considering a home purchase in Oregon or Washington, give Peggy Hoag Real Estate a call.
We have helped many clients with LLC purchases, and we have honestly advised against LLC home purchases when they simply didn’t make sense.
Let our team share our years of experience and expertise in buying and selling homes in the Pacific Northwest and give yourself peace of mind.
Does it Make Sense to Buy a House Through Your Business?
In some situations, using an LLC to purchase your home may be an excellent strategy, especially for rental properties.
Shielding your personal assets by purchasing your investment property with your LLC can offer you some protection.
But, you need to consider the business costs that add up when maintaining your LLC. This can cut into profits if not managed properly.
You might consider the option of purchasing an insurance policy. In the unfortunate event of a lawsuit surrounding your investment property, you would be protected.
It comes down to deciding whether the protection of your LLC is necessary — or even worth it.
4 Advantages of Buying a House With an LLC
Keeping your personal life separate from your business life is one of the primary reasons people choose to use an LLC to purchase a home.
But, buying a property with an LLC comes with many other advantages, including:
- Partnership possibilities
- Increased privacy
- Tax benefits; and, of course
- Limited liability
Let’s have a closer look.
#1: Limited Liability
LLC stands for Limited Liability Company, and that’s exactly what it does.
LLCs limit your personal liability for the company’s debts. If a lawsuit could spell disaster for your investment, the LLC structure may be appealing to you.
But remember, there are limits within the LLC structure. If you plan to live in the home owned by the LLC, you may be at risk of becoming personally liable for corporate damages. This would essentially nullify any protection originally offered.
#2: Tax Benefits
Tax benefits can be an attractive advantage to purchasing property under an LLC. The main reason is to avoid double taxation.
Double taxation occurs when profits are taxed twice. First, at the business level, and second at the personal level.
But LLCs are structured with pass-through taxes, meaning the LLC pays the taxes on the profit, not the owner of the LLC.
However, LLC owners must still pay the taxes on their share of profits.
LLCs offer privacy by concealing your personal identity.
Many business owners prefer this path because it’s the name of the LLC that will appear on all public documentation and disclosures, rather than the owner’s name.
In essence, you’re replacing your name with a corporation name, allowing you to keep your identity hidden.
#4: Ease of Investing With Partners
LLCs make partnerships much easier. Whether or not investors know the owner of the LLC, the structure is both legal and protects each investor equally.
LLC shares can also be sold easily.
An existing member can sell shares to a new member, creating a multiple-member LLC.
However, a true business purpose must be in place for the LLC to be considered legal.
4 Disadvantages of Buying a House With an LLC
Buying a home with an LLC may seem like an attractive option right off the bat, but there are downsides to consider.
Before jumping into an LLC purchase, it’s always a good idea to consult an expert on the process.
The team at Peggy Hoag Real Estate can assist you every step of the way.
If you’re a business owner in Oregon, Washington, or anywhere else in the U.S., and are looking to purchase a home in the Pacific Northwest, we can guide you through the entire process. Give us a call for more details
#1: Cost of Set-Up
Unless you already have an LLC, the cost of setting one up may not appeal to many buyers.
The main costs involve the LLC’s articles of organization. Depending on state guidelines, legal fees can amount to more than $500 — not including permit and licensing fees.
Once you have established your LLC, you’ll also be responsible for paying:
- Annual LLC taxes
- Registered agent fees
- Business license renewal fees; and
- Annual report fees
It’s a good idea to seek legal advice when forming your LLC. Doing it yourself could end in a lot of wasted time and money.
#2: Difficulty Getting a Mortgage
Having an LLC does not guarantee a mortgage. Many banks are hesitant to lend money to LLCs because they know that the owners cannot be held personally liable for the debt of the company.
Banks may only extend a mortgage to smaller LLCs if the partners, stakeholders, or owners offer up their personal assets against the debt.
Remember, “limited liability” means just that. For many lenders, it’s just too high a risk.
#3: Higher Interest Rates
Since most LLC property purchases are for investment purposes, lenders generally charge a higher interest rate.
Because your first mortgage must take priority in the event of financial trouble, your investment property falls to the back burner.
Lenders see the purchase as a greater risk. Increasing interest rates offer greater upfront protection to the lender if the loan defaults.
#4: Inability to Qualify for Many Types of Loans
LLCs do not have access to different types of residential loans, such as FHA loans and conventional loans.
What this means is that a newly married couple looking to buy a primary residence with income potential (like a duplex or in-law) can’t take advantage of the low down payment offered by FHA loans.
FHA loans also offer tax benefits that you’ll miss out on if you purchase under an LLC. An FHA mortgage can be deducted on personal income tax, as can the mortgage insurance.
Looking to Buy a House Through Your Business? Peggy Hoag Real Estate Is Your Source for Luxury Homes in Oregon & Washington
If you’re interested in learning more about buying a house with your business, Peggy Hoag Real Estate can help.
We have 30+ years of experience in luxury and investment real estate in Oregon and Washington, and we can make your LLC home purchase a breeze.
Contact Peggy Hoag to get your home search started today.