Most property investors consider forming a limited liability company, especially if purchasing multiple properties. Though an LLC is not required, it does have its benefits. Let’s take a look at what an LLC is and at the benefits of buying a house with an LLC.
What is an LLC?
An LLC is a Limited Liability Corporation that is essentially a hybrid between a sole proprietorship and a corporation. An LLC’s profits is taxed as personal income by the person(s) who own the LLC, just like a sole proprietorship or partnership.
However, in the legal department, an LLC is treated more like a corporation, where personal assets of the owners are separated from their corporate assets. That’s where the term “Limited Liability” comes in, since its (mostly) limited to the assets of the corporation. We say ‘mostly’ because some state’s corporate veil is easier to pierce than others.
Benefits of an LLC
Before we jump into the benefits, we should mention the one downfall of an LLC: lenders. Lenders are more hesitant to open mortgages with an LLC, especially a new LLC. However, you can get around this by purchasing the home in your name and then transferring it to your LLC. You’re personally still liable for the mortgage but the liability protections of the LLC will apply to the property.
It Helps Maintain Privacy for the Homeowner
Public records display the owner’s name. If buying a house with an LLC, the name of the LLC is listed on the public record. So, if a homeowner wishes to remain anonymous, then an LLC is the way to go. This is most common among celebrities or other wealthy people who don’t want the public to know who owns the home.
It Offers Protection If there is Ever a Lawsuit
If someone is injured on your property, whether it be a tenant or a visitor, they can assess damages against all of your possessions. If buying a house with an LLC, they will likely only be able to go after the assets of the LLC rather than the person who owns the home.
Helps Avoid Double Taxation on Income
If you plan to buy a home to rent to other people, it’s a great idea to purchase it under an LLC. This will help avoid double taxation on the income that you receive from the property-based source. In other words, the structure of the LLC will ensure that you are only paying taxes once, rather than paying both a personal tax and a company tax on the profits you receive from the rental income.
Great for Buying Multiple Homes for Income
LLCs are commonly used by investors and companies that buy houses for passive income. This may be for the reasons we’ve already discussed above, or it may simply be to start a business that focuses on buying rental property. This is especially true for those who buy the homes to rent through a property management company. That way, the tenants are only aware of the names of the property management company and the LLC, not the homeowner’s names.
Buying a house with an LLC certainly has its benefits, but this is just a general guide. An LLC also has its limits, so be sure to research it thoroughly for your state. If you’re interested in investing in or buying a house in Florida, you should visit our site. Tropic Coast Homes buys homes for cash, renovates them, and sells them at great prices to individuals and LLCs. See Homes For Sale.