Buying a home through a Limited Liability Company (LLC) is beneficial for three main reasons:
1. Homeowners can maintain a level of privacy because the LLC is listed as the owner of record.
When setup properly deal constructed under legal entities are virtually untraceable. For buyers who appreciate their privacy and wish to prevent the curious from locating their address and/or what they paid for their property in public records, buying a home through an LLC is often the preferred method to purchase property.
Many buyers of high-end luxury properties prefer using an LLC, because all property transfers are recorded and available to anyone who wishes to look up information using an address or name. An LLC offers a first level of defense against a buyer’s name entering the public record.
2. Owners can protect more of their assets in the event of a lawsuit.
If you own your residence in your name (as most people do), someone who’s injured on your property can sue you directly.
While homeowner’s insurance (and umbrella insurance if you have it) will cover the payments on a successful lawsuit up to a certain coverage limit, your other assets––including your savings, investments and home equity––could be garnished to cover the rest of the damages should they exceed the coverage limits.
However, if you own your home in an LLC, then the lawsuit can only name the LLC, and the only assets that can be used to pay off the suit are those assets held in the LLC (which ideally would just be your home.)
In addition, investors commonly use an LLC to purchase properties they intend to rent to tenants because of the liability protection offered by the structure. Large investors who hold extensive portfolios of residential and commercial rental space utilize the LLC to avoid potentially devastating lawsuits arising from any one of their many tenants. When you own your property as an LLC you pay your property taxes through the LLC and can even funnel other costs of homeownership through the LLC.
3. Tax Advantages
LLCs have “pass-through taxation” and any profit or loss associated with the property is passed through the LLC and onto the individuals who own the LLC. These individuals report the gains or losses on their personal tax returns thus providing opportunities for additional tax advantages. The capital gains tax rate is lower on a single-owner LLC than on other entities and thus if you use property for rental income or other investment purposes, it is to your financial advantage to do so under an LLC.
With any property, there are expenses to pay. A member of the LLC can funnel property related expenses through the entity. This is helpful for tax purposes as well as maintaining the financial independence of the LLC from the individuals. Expenses like maintenance, homeowner-association fees, taxes and utilities should be paid from the LLC’s account. You want the LLC to operate as an independent entity and not be too closely tied to you personally or you might lose some of the legal protections afforded an LLC.
It’s important to note that a bank won’t lend to a newly formed LLC and many won’t lend to any LLC unless you agree to secure the loan personally. Lenders don’t want your liability to be limited to whatever little the LLC is worth and as such the home can be purchased in your name, and you may then transfer the deed to the LLC. The LLC then owns the property, not you while the mortgage remains in your name. It’s important to note that this could trigger a mortgage’s due-on-sale clause and thus this is something you should discuss with your lender. That said, most lenders aren’t interested in foreclosing on performing loans and while this should be a consideration, it’s not a deal-killer.
If you’re considering buying a home with an LLC, it’s important to consult an attorney and a tax advisor with experience in your state. You need expert advice to understand the implications of buying property under this type of ownership.
If you, or someone you know is considering Buying or Selling a Home in Columbus and Central Ohio please contact The Opland Group. We offer professional real estate advice and look forward to helping you achieve your real estate goals!
The Opland Group Specializes in Real Estate Sales, Luxury Home Sales, Short Sales in; Bexley Columbus Delaware Downtown Dublin Gahanna Grandview Heights Granville Grove City Groveport Hilliard Lewis Center New Albany Pickerington Polaris Powell Upper Arlington Westerville Worthington