Buying a House with an LLC: A Definitive Guide

Buying a house with an LLC can offer asset protection, tax advantages, and flexibility in managing rental properties or investment real estate.

Buying a house with an LLC

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When it comes to purchasing a house, many factors come into play. One such factor that may be of particular interest to foreign nationals and US non-residents is the use of an LLC. This article will provide an overview of what you need to know to buy a house with an LLC, specifically for foreigners buying a property in the United States.

We’ll discuss some of the benefits of using an LLC when purchasing a home and some things to keep in mind when making this purchase. So, whether you’re thinking about buying your very first home, making a real estate investment, or are simply interested in learning more about using an LLC for this purpose, read on for helpful tips and insights on LLC!

What is an LLC?

AN LLC is known as a Limited Liability Company. Applying for a business structure that shields the owner from personal responsibility due to company actions is known as LLC (Limited Liability Company). AN LLC can incorporate members such as corporations, MNCs, individuals, foreigners, non-residents, and more.

Some states might or might not allow individuals with an LLC to buy a house in some cases because, in certain conditions, LLC rules prohibit people from being LLC owners. Please ensure that the state you are trying to buy a house in with an LLC allows individuals to own an LLC.

An LLC provides legal protections and specific tax benefits for individuals or businesses. However, the assets of an LLC are typically protected only by the company’s property; thus, in the case of a lawsuit, the owner’s personal belongings remain untouched.

LLCs are not subject to the same bookkeeping rules as C and S corporations.

Why should you buy a house with an LLC as a Foreigner?

Generally, people purchase a house under an LLC for real estate investment or rental property purposes. However, many regular people wonder if buying their home with an LLC makes sense for them.

On the one hand, LLCs can offer increased privacy and asset protection, as well as options for estate planning. But on the other hand, buying a home with an LLC can mean additional costs. And if you plan on living in a home owned by your LLC, you may struggle to maintain liability protections and face various legal and tax implications.

Most people buy a house with an LLC, as the primary purpose is to invest in real estate or to buy a property. Many still wonder if buying a house under an LLC is worth it because it has both advantages and disadvantages like:

  • LLCs provide various benefits in addition to better privacy and asset protection, including estate planning, which may be helpful for some people.
  • You’ll have to pay additional fees if you acquire a property through an LLC. You may also run into difficulties with liability protections and face legal and tax consequences if you want to live in an LLC-owned property.

Buying a house with an LLC as a Foreigner

Now that you know what an LLC is, how it helps and why people want to buy a house on an LLC, let us look down some steps on how to buy a house with an LLC:

Step 1: Register for LLC

The first step in buying a home using an LLC is registering and creating your LLC. The process can take from 1-2 weeks, so it is suggested that you start registering as soon as possible. The process’s time can also depend on the state you are applying from. The real estate market is changing rapidly, so the last thing you want to do is buy a property you like before establishing your LLC.

Step 2: Prepare to buy

After successfully registering for your LLC, you need to open a bank account for your business and company, and you will need an EIN. If your LLC is taking out a mortgage, anticipate the process will take longer as lenders have stricter requirements and ask for more information from buyers using an LLC.

IRS
Source: IRS

Step 3: Get a real estate agent.

Buying a home for the first time or even repurchasing a property through LLC can be daunting. Hiring a real estate agent can help you find your next home. You can inform your agent about your choices, likes and dislikes, and expectations of a perfect home. A CIPS agent will most certainly meet your expectations and help you out with buying your home. If you wish to hire a real estate agent, HomeAbroad can help you find the best CIPS-designated real estate agent to find your new home!

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Connect with a HomeAbroad real estate agent in your area.

Step 4: Find your dream home.

Looking for your dream home is always an exciting step in your process of buying a house with an LLC! All you have to do now is to start searching for a home of your liking. After your LLC is completed and set up, you must prepare everything from documents to your LLC. Now, just make an offer through your LCC to a house you have selected to buy; before you make the offer, ensure that your offer letter has your business name and address written on it.

Step 5: Get financing for your home.

You must connect with a lender to help you get a mortgage loan for your property with an LLC. Here a lender can help you ease the process of getting a mortgage loan for your property. This step is a bit difficult for foreigners buying a house with an LLC, but you needn’t worry. HomeAbroad is here to help you to find the best professional mortgage lender to finance your property with no US credit.

Step 6: Closing day

You’ll sign the sales contract as the LLC’s owner, and all associated checks and payments will come from the LLC. You must know that closing on a house with an LLC is very similar to closing on a house when you buy a house without an LLC. The closing procedure itself will be simple. It won’t be any more difficult than closing on a property as an individual, except that everything will happen in the name of your LLC.

Advantages of buying a house with an LLC

Privacy

The LLC structure gives business owners privacy when they purchase homes, which may appeal to you. When you buy a house with an LLC, the name that must appear on documents and public disclosures is not of the house owner. This means an LLC enables you to put your company’s name instead of yours, which hides your personal identity and other important information.

Limited liability

A limited liability company (LLC) is a legal business designed to reduce the risk of starting your own business. It eliminates personal responsibility for the firm’s debts and liabilities. This attracts most business owners and investors to LLCs since the chances of them facing a lawsuit against them are low. Still, there are some limitations within the structure of limited liability.

For instance, Owning a home through an LLC can mean that the corporate veil is “pierced.” This legal term means that the individuals running a corporation or LLC can become personally liable for corporate damages as if the company structure never offered them any protection.

Tax benefits

There is a term called double taxation, which refers to the profits that are taxed first to the company or the business and then on a personal level of the individual. Here, the LLC can offer some specific tax benefits in eliminating the double taxation that a person could face. For example, LLCs with a pass-through tax structure pay taxes on profits, but the owner of the LLC does not. However, LLC owners must pay taxes on their allocated earnings cut.

LLC helps invest with partners

It is constructed to enable business partners, colleagues, or even friends to invest easily together. LLC also helps in investment with those investors who are unaware of the LLC’s primary owner.

For instance, Twinned individuals may start an LLC as partners. In addition, a single-member LLC can be expanded to a multiples-member LLC simply by adding another member.

You may also sell LLC shares quickly and easily. The most straightforward method is to have a new member purchase shares from an existing partner. Every member of an LLC must give 100% of the company’s equity.

Remember that this does not mean that entirely unrelated persons who want to buy a house together should consider the LLC structure. Without a true business purpose, the structure will be regarded as illegal.

Keeping business and personal life apart.

The most appealing part of an LLC is that it can easily allow a person’s business, property owners, and personal lives to be separated from each other. On the other hand, owners who carry personal costs through the LLC make it simpler to pierce the corporate veil and disregard the company or LLC’s independent existence if it is sued.

Piercing the corporate veil can be a problem for LLCs of all sizes, particularly those with more than one member.

Disadvantages of an LLC

You have to pay a legal fee for filling the LLC, which can cost up to $40-$500. This can also vary depending on the state where you are filing the LLC. Additionally, you will have to pay a business license and permit fee.

Once you’ve established your company, you’ll also be required to pay extra yearly LLC taxes, annual report costs, registered agent expenses, and business license renewal fees. You must seek professional legal counsel when forming your LLC to avoid any potential issues down the road.

Difficulty in getting a mortgage loan

Banks understand that LLC members and shareholders are not personally responsible for the company’s obligations. Therefore, banks will only extend a mortgage loan to a small LLC or corporation if the firm owner offers personal assets to back the debt in this situation.

However, if you have trouble obtaining a mortgage for your LLC, HomeAbroad can assist! We provide the US mortgages with no US credit to foreign nationals. We specializes in foreign national mortgages, and offer the most competitive terms to our customers. Reach out to get started.

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Higher interest rates

An attempt to buy a property with an LLC provides lenders with a clear indication that the owner has attempted to purchase it for investment purposes rather than as a primary residence. In addition, because a first mortgage takes precedence, an investment property will take a backseat in the event of financial difficulty.

Typically, investment property mortgages have slightly higher interest rates than primary home mortgages.

HomeAbroad can help foreign nationals here to connect with US lenders that can provide them mortgage with no US credit and at reasonable interest rates.

No preferential capital gains treatment

Generally, a person pays capital gains tax when they sell a residential property for motor money than they bought it for. Usually, when you are a primary residence, special treatment is provided on capital gains tax. The first $250,000 in profit for an individual is tax-free. Couples who are married have a $500,000 exemption.

An LLC holder is restrained from having these perks of capital gains tax when they own property for an investment purpose.

However, you can own the home for two years to qualify for the capital gains tax exemption. You must also have to live in that home for at least two years as a primary resident of the house.

Conclusion

LLCs are an amazing way to protect your personal assets and provide you with some tax benefits. However, it’s essential to know the additional costs and other considerations before forming an LLC. If you’re ready to take the next step, check out your state’s official website for more information on LLC laws in your area.

Once you are done researching, you can take our help to connect with the right lender and real estate agent to have a smooth property buying process with an LLC.

FAQs

Who Are Asset-Based Lenders?

Real estate investors who own more than one property may consider asset-based loans with their real estate portfolio. Asset-based lenders will give you money based on an agreed percentage of value for your assets, and they only need liquid collateral instead of physical assets.
If you want to take advantage of these types of loans, you must have a proven record of success and own multiple properties. These types are ideal for active investors because they provide liquidity without breaking the bank.

Who should think about buying a house with an LLC?

Preferably, real estate investors who are already experienced in their field should plan to buy a house with an LLC as they can benefit from the structure of the LLC to grow their business. In addition, as mentioned, investors who are experienced can own more than one real estate property that can protect them from personal liability.

What is a single-member LLC?

When a single person owns an LLC, that is known as a single member LLC (SMLLC). All LLC members are treated equally, regardless of their status, and are allowed in all states in the US. However, they are classified as disregarded entities for tax purposes. This means that taxes are filed as if the LLC didn’t exist, i.e., taxes are paid as a sole proprietorship.

What is the advantage of putting property in an LLC?

You can take several advantages of the LLC when buying a house, such as complete privacy, limited liability, tax benefits, and opportunities to partner with other real estate investors. It also benefits you from keeping your personal and professional life apart.

About the author:
Michele Lawrie, a seasoned real estate professional licensed in New York and Florida, serves as the Chief Real Estate Officer at HomeAbroad. With over 15 years of experience and specialized certifications from the NAR (National Association of Realtors), Michele is a trusted expert for foreign nationals buying US real estate.

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