How To Buy A House Through Your Business

11/28/2022 15:11:00 +0000
Many people thinking of purchasing property as an investment take out mortgages to buy them.
Despite this, using your business to finance the property may give you added protection that you may not have had with the individual mortgage method.
Some may also want to purchase a home that acts as an office for their company, but they will need to show that the home is mainly used for business purposes.
You can do this by paying rent to the business for the areas of the home you use as personal housing.
You'll learn how to do this in this post, including the advantages and disadvantages of purchasing a home with a business, in this case, an LLC.
Why Use An LLC?
LLC stands for Limited Liability Corporation. This type of business restricts your liability, whether you're renting property to others or managing your store.
For instance, you can be legally liable for people injured at properties that you own. If the home is a rental, your personal assets may be at risk.
If you have an LLC, however, there is an extra layer of protection that a judge will have to get through for you to be liable.
People often purchase rental and investment properties under LLCs, due to the added privacy and asset protection.
However, it often costs more to do so. If you want to use the home owned by the business as your main residence, you can run into problems related to tax and liability protections.
How To Buy A House With An LLC
Form The LLC
First, you need to register and form an LLC. This may take one or two weeks, depending on your state, so begin as early as you can. Real estate moves fast, so you don't want to find a home you love before you've created the LLC.
Start Preparing
Now you'll need to get an EIN number and create a business bank account for the business. Getting a mortgage for the LLC may take more time as lenders are stricter and need more information from people using LLCs to purchase homes.
Find The Home And Make The Offer
You can start looking for homes after you've created your LLC and done the preparation work. After you find a house you want, you'll need to make an offer using the LLC.
Even though you own the company, you need to make sure that the seller is aware you'll be buying using the LLC. The offer letter should incorporate the business address and name.
It may take more time to close when using a mortgage with an LLC, though the closing step should be relatively easy.
This is like closing on a home as an individual person, but the difference is that all the paperwork will be in the name of your LLC.
Every payment and check will be made from the business, and you'll need to sign the sales contract as the owner of the LLC.
Pros Of Buying A Home Through An LLC
Public figures or business owners may be drawn to the privacy of an LLC structure. Buying a house with this business makes sure that the company's name shows on public records instead of your name.
The LLC method guards your identity by using a business name and identity to replace your name on records.
Limited Liability
This means that the owner won't be liable for the business's liabilities or debts. If you are a landlord or real estate investor that is wary of lawsuits, the LLC scheme might be a good idea.
Bear in mind that there are limits to the extent of limited liability. An example is if you reside in the house bought under the LLC.
If this is the case, shareholders, owners, and members of the LLC can be personally held responsible for corporate damages, like the LLC framework was never there.
Estate Plans
Rather than filing a new deed of trust or a mortgage, you can transfer the property to your family members by adding them as LLC members, or increasing each individual's percentage of ownership in the business.
You can also put clauses in the LLC operating agreement declaring that the home should be passed down to your family members.
Separating Personal And Work Life
Using the LLC to buy a home can work well for separating your work life and personal life. Remember that if you want to use the LLC for personal expenses, you run the risk of piercing the corporate veil.
Cons Of Buying A Home With An LLC
Costs More
Creating an LLC can cost a lot due to the extensive fees, like legal costs. One element of these costs is filing the LLC's organization documents.
This can be priced as little as $40 or as much as $500, based on the state that you live in. You might also need to pay for permit fees and company licensing.
Once you have created the LLC, you may need to cover yearly LLC taxes, report costs, business license renewal costs, and agent registration fees.
Check that you can cover these costs and look for guidance from legal professionals when creating your LLC.
Less Mortgage Financing Possibilities
You may be able to get a mortgage on LLC-owned homes, but you won't have as much chance of getting a government-backed loan, like an FHA (Federal Housing Administration) loan.
Other lenders may not want to offer a mortgage loan when buying property through an LLC, as the LLC offers liability protection.
Traditional loan lenders may also need you to deliver a personal guarantee in case the LLC cannot pay back the mortgage loan.
The Bottom Line
Purchasing a home with an LLC business is ideal for privacy, estate planning, and liability protection.
Despite the advantages, there are also cons, like higher costs, and living at home can lower the amount of liability protection from the LLC.
You may find that living in a property bought through an LLC gives you more issues than benefits. It's best to speak to legal professionals about advice on purchasing a house with an LLC, so you can decide if it is the best route for you.
About the Host
Sophie Howard is the founder of Aspiring Entrepreneurs, a community designed to help people develop the skills and confidence to build a business and a life that serves them. Sophie began online in 2013 with an Amazon firm, which she sold for more than $1 million in 2015.

Sophie has lectured on stages all around the world, encouraging and teaching other ambitious entrepreneurs. She has established instructional programs educating thousands of students how to sell online, in addition to releasing over 1000 products.

Sophie has also written a book titled "Aspiring Entrepreneurs: A Guide to Finding Your Best Path to Financial Freedom."
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