Key Takeaways

  • Buying a house under an LLC can offer liability protection, privacy, and potential tax advantages, but it also comes with financing and administrative challenges.
  • LLC ownership shields personal assets from lawsuits related to the property and may keep ownership information out of public records.
  • Lenders may require personal guarantees or impose stricter loan terms when financing property purchases through an LLC.
  • Forming an LLC involves state registration, creating an operating agreement, and maintaining annual filings and fees.
  • Transferring an existing property into an LLC may trigger due-on-sale clauses or property tax reassessments.

An LLC can buy a house, and there are many advantages to forming an LLC (limited liability company) for a real estate investment. 

Forming an LLC For Real Estate Investments

LLCs have grown in popularity within the past 10 years, especially when it comes to real estate investment holdings.

LLCs were not considered a legal business entity until Wyoming decided to allow LLCs to form to meet oil company needs in 1977. Before these entities came into existence, property investors had to rely on the use of corporations for title acquisitions, which aren't as easy to work with as LLCs.

The next state to join in the legalization of LLCs was Florida in 1982, and eventually the entire United States came to recognize LLCs as legal business entities. This particular business structure offers protection to investors who want to invest in real estate while also providing easy administrative duties and taxation.

LLCs do offer many perks for investors looking for a holding company for their property assets, but it might not be the right fit for every real estate owner. Some investors don't find the liability protection worth the effort of an LLC startup. Liability insurance covers enough of their assets in the minds of some investors.

Liability insurance policies do have their limitations, so investors who only rely on this type of insurance for protection are taking a bit of a risk. The chances that something would happen to create enough loss for the insurance policy not to cover it are low, but if that does happen, the ramifications would be severe.

The popularity of investors using LLCs for real estate holdings is likely to continue to rise according to the current trends in the market. Property owners are continuing to learn about the benefits of this type of business entity and take advantage.

Steps to Buy a House Under an LLC

Purchasing a property through an LLC involves several procedural steps that differ from buying as an individual:

  1. Form the LLC – Register your LLC with the appropriate state agency, pay the filing fees, and obtain an Employer Identification Number (EIN) from the IRS.
  2. Open a Business Bank Account – This keeps LLC finances separate from personal funds, supporting liability protection.
  3. Establish an Operating Agreement – Outline member roles, profit distribution, and property management responsibilities.
  4. Secure Financing – Not all lenders work with LLCs, so seek lenders experienced in commercial or investment property loans. Expect possible higher interest rates, larger down payments, or personal guarantees.
  5. Make the Purchase – Ensure the purchase contract names the LLC as the buyer, and title and deed are recorded in the LLC’s name.
  6. Maintain Compliance – File annual reports, pay state fees, and keep proper records to preserve liability protections.

These steps help ensure the LLC is recognized as a separate legal entity and that property ownership is properly documented.

The Benefits of an LLC Holding

LLC holdings for real estate protect the property owner's personal assets from liability.

For instance, if a property owner is renting out a beach house and the renters decide to have a party. Any injuries or accidents on the property make the property owner liable. Say one of the guests falls off of the deck and gets seriously injured. If that party guest decides to sue for damages, the property owner's personal assets and finances could be in danger if they own the property as an individual.

If the property owner had formed an LLC, and that business entity was technically the owner of the property, the business could be sued, but the individual's assets would be protected. Only the other assets owned by the LLC would be liable in the lawsuit.

Property owners can also benefit from the LLC's status as a pass-through entity. Even though LLCs provide the liability protection of corporations, they are taxed like partnerships or sole proprietorships.

The profits of an LLC pass straight through the company to the company owners or members. The LLC is not taxed, so the profits are only taxed once as the income of the individual members on their personal income tax returns.

C Corporations (C Corps) are taxed as corporations, so the company profits are taxed as business income, and then they are taxed again when the dividends are distributed to shareholders. The shareholders must claim this income on their tax returns, which means the income of C Corps is subject to double taxation.

Corporation owners can avoid double taxation by electing to be an S Corporation (S Corp), but S Corps have many requirements and regulations that make it difficult for real estate investors to benefit from using them as a holding company.

The IRS automatically classifies any real estate investor's holding company as a disregarded entity or sole proprietorship. Disregarded entities are:

  •  business entities that are only subject to individual taxes
  • are not subject to business taxes.
  • Owners of these types of companies get to benefit from the liability protection of an LLC with the tax benefits of an individual.

Property owners have income from renters as well as their gains in property value. If they choose to form an LLC, they'll avoid double taxation on both of those forms of income. Current rules of the IRS also allow owners of LLCs to deduct any interest from property mortgages. 

Risks and Challenges of Buying a House Under an LLC

While an LLC offers clear benefits, there are important considerations before committing:

  • Financing Restrictions – Many mortgage lenders prefer lending to individuals, not LLCs, which can limit options or result in less favorable loan terms.
  • Higher Costs – Expect larger down payments (often 20–25% for investment properties) and possibly higher interest rates compared to personal home loans.
  • Administrative Obligations – Annual state fees, registered agent costs, and reporting requirements add to ongoing expenses.
  • Due-on-Sale Clause Risks – Transferring a mortgaged property into an LLC may trigger the lender’s right to demand full repayment.
  • Privacy vs. Transparency – While LLCs can keep your name out of public property records, some states require disclosure of members or managers.
  • Limited Tax Benefits for Personal Residences – If the property is your primary home, you may lose certain personal tax deductions or exemptions when owned by an LLC.

Frequently Asked Questions

  1. Can my LLC get a mortgage for a residential property?
    Yes, but many lenders require higher down payments, charge higher interest rates, or request a personal guarantee from LLC members.
  2. Will I lose the primary residence tax exemption if my home is owned by an LLC?
    Yes. LLC-owned homes generally do not qualify for personal residence exemptions or deductions.
  3. Can I transfer my existing home into an LLC?
    You can, but it may trigger a due-on-sale clause in your mortgage and could lead to property tax reassessment.
  4. Is buying a house under an LLC only for investors?
    No. Some individuals use LLCs for privacy or liability protection, but it’s more common for rental or investment properties.
  5. Does an LLC protect me from all lawsuits related to the property?
    It limits liability to LLC-owned assets, but personal guarantees, fraud, or negligence can still expose you to personal liability.

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