What Does it Mean When an LLC Owns a House?

Owning property as an individual—or even a group of individuals—has its own advantages. But in certain cases, buying a house under an LLC company becomes more financially viable. Moreover, many property owners choose this method due to certain benefits that only an LLC formation or establishment of a corporation can provide.

LLC property ownership

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If you choose business incorporation as a new method of real estate management, there are plenty of incorporation companies and LLC formation services that offer support for this specific issue. Some of the best LLC services in the industry have developed dedicated teams of legal professionals to help you handle the paperwork concerning real estate, business loans, and more.

But even if you work with the top 5 LLC formation services with a useful business formation guide site, there are some aspects about buying property through a company that you should know about. Let’s look at the main aspects of this process as well as some pros and cons.

Starting an LLC with Incorporation Services

If you don’t have an active LLC yet, a good way to start one is through a special website. Most online LLC formations work much faster and are often less expensive. It’s worth mentioning that the cheapest formation won’t always be the most comprehensive.

Nevertheless, there are still reliable ways to handle LLC incorporation without much excess, specifically through affordable company formation services that have a good price-value ratio while still offering LLC creation services that suit your legal needs.

Before you pay for any cheap company formation, try to clarify why you need this company. Outline your goals and compare business formation websites to see which options fit most of your requirements.

Always make sure that the LLC website you are hiring is proficient in legal matters. One of the best LLC services that handle such forms is Rocketlawyer as in addition to the document library, they also offer professional services like attorney consultations, tax assistance, and more.

Legal documents

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Another good option for a quick and painless launch is Legal Zoom who has established itself as the best LLC service in the low to mid-tier price ranges. One of their direct competitors, Mycompanyworks, is a popular choice among owners who prefer more flexible formation subscriptions and wish to use their compliance tools in the future.

Buying a House after LLC Formation

Another major aspect of managing a property through an LLC is covering all your basics in the very early stages of business formation. Only the best LLC services will help you with every little detail when it comes to legal matters of company property management, one of them being the creation of an operating agreement.

Although most LLC formation services today offer templates of this agreement, only the best service can actually assist in drafting a custom document that stipulates all ownership rights, procedures, and other matters clearly.

In addition to the agreement, your LLC must also acquire relevant licenses and register with the department of labor. All these things will act as proof of your company’s status and standing for potential lenders. Specifically, if your operating agreement shows that the company already owns other properties, you might get much better rates with many lenders.

Some owners also tend to get confused when buying actual property through an LLC, particularly when it comes to raising funds for the purchase. Given the limited liability nature of the structure, personal and company assets are clearly separated, both through the operating agreement and separate bank accounts. So in the event of dissolution or liquidation of LLC assets, dividing the property could prove to be problematic. For this reason, some LLC members choose to lend their personal funds to their company to establish a clear line of ownership.

Advantages of Purchasing Property Through LLC Services

Buying a house or other form of property through an LLC, regardless of whether it was formed through a business formation service or attorney agency, is becoming more commonplace among many homeowners.

Some of the best LLC services are now offering real estate management and other related solutions. This growing trend is largely a result of several benefits as offered by LLC formation services that can establish your future company, namely:

  • The corporate veil offered by the LLC structure ensures stronger personal liability protection for your personal assets, meaning that you can’t be sued for the debts owed by the LLC-owned property;
  • The way that LLCs are established guarantees automatic privacy protection since you will be managing all property under the LLC’s name and business address, as well as using the contacts of your registered agent;
  • The operating agreement at the core of an LLC makes it easier to transfer ownership of the property and the company itself;
  • As flow-through entities, LLCs offer significant tax benefits in some jurisdictions.

In addition to shielding the owners from creditor claims in regards to the LLC-owned property, this structure can also give you access to the commercial side of mortgages. It may not be the best option for everyone, but some owners find it more beneficial to separate their personal and business finances, debts, and credit scores.

As long as you remain in good standing and keep a clear record of all transactions, you can qualify for a fast mortgage under your business name.

Disadvantages of Buying Real Estate Through LLC Service

For all their real estate flexibility, managing the property this way can end up costing you quite a fortune. Even if you launched the company using inexpensive LLC formation services, you might have to cover a range of additional costs. Some of the bigger disadvantages of this process include:

  • Higher interest rates;
  • Maintenance costs;
  • Additional taxes based on jurisdiction;
  • Larger down payments;
  • Fewer lending options.

Aside from the initial formation fees that go into incorporation services, annual reports, and licensing, you may be forced to file separate tax returns. This might seem strange since this structure is famously not subject to income tax.

Usually, owners report company income through personal returns, but this is the tricky part of buying real estate this way. Even with the best LLC services to help you, your maintenance expenses may double through sheer bad luck. High property tax rates or not, you might need to have a clear division of funds which could mean separating your tax returns.

Another drawback of this system is the risk of being evaluated as an investment property. If a lender classifies your LLC property as a means to earn rentals, you will have to work with higher interest rates and follow a completely different set of rules. This is why it’s a good idea to either hire a lawyer from the get-go or consult one of the professionals in top LLC companies.

To sum up, quite often, it’s much easier to fund the purchase of property through residential means rather than commercial lending channels. And if you do it through a company, it won’t matter that you used the best LLC service to get your paperwork in order—any lender will treat your application as a commercial one.


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