House Hacking and LLC's?

Question

Hello, Im planning on house hacking my first property and i've already gotten pre-approved by a lender but now im finding out that the loan has to be in my personal name.

I want to have LLC set up in order to be protected as well as take advantages of the tax benefits.

Looking for advice

Costin I. · Answer

@Angelina McEwen - Do you have other major assets to protect? Do you buy with a large down payment?

Make sure you have something to protect first before complicating your life with LLC creation and maintenance. The mortgage note itself (and the associated lack of substantial equity) is a form of protection. Then you need first proper insurance and umbrella insurance. And of course good property management. Read Every-Landlords-Property-Protection-Guide before deciding for more advanced asset protection structures.

With an LLC you'll likely have to get a commercial loan - meaning you'll loose one of the main advantages of house hacking, the very favorable financing options in personal name. There are ways to transfer property after, but you'll have to consult with a specialist like @Scott Smith.

Here are some graphical representations to help you in these decisons/discussions:

Michael Delmont · Answer

@Angelina McEwen I think the issue is with the type of loan you are requesting. If you want to use the LLC for the Title and loan a conventional with 20% down would be the way to go.

If you're looking for an FHA or other government backed loan with a lower down payment then they require it to be an Owner Occupied property.

While you could be living in the property, if you have title in the name of your LLC lenders look at that as investment property and you would be "renting" from the corporarion who actually owns the property as an investment.

Angelina McEwen · Answer

@Costin I. Thank you for sharing your knowledge. I've consulted with a RE Lawyer.

Angelina McEwen · Answer

@Ned Carey thanks!

Munqith Alhajjaj · Answer

I think you would have to talk to a lawyer for more help, but my understanding that you can start with your name and then transfer it to un LLC that you will set up later.  check "Should You Get an LLC For Your Real Estate Business?" by Brandon Turner

Ned Carey · Answer

@Angelina McEwen an LLC will not stop a lender from expecting you to guarantee the loan. Also an LLC will mean higher rates and no advantage for being home owner occupied.

Expecting to not have to guarantee a real estate loan is not realistic. However putting the loan in the name of an LLC may keep it off your credit report. That might be an advantage but could just as easily be a disadvantage. Your credit score benefits by having a variety of credit. Having a home mortgage in your name will probably help your score once you have made some payments on the loan.

There is no tax advantage to having an LLC in your situation and could have a big disadvantage in capital gains. An LLC doesn't give as much protection as you might think. Yes every property other than my home is in an LLC but I would not put my home in one.

It is best to talk to an accountant and lawyer for advice for your specific situation.

Angelina McEwen · Answer

@Alex Coundouriotis i need an advice to what to do... I cannot get a loan from a mortgage lender unlesss its in my personal name (not llc) but i understand that i need an llc so i dont know what to do.

Alex Coundouriotis · Answer

Congrats on the pre-approval, I hope you have a great start to your RE career! Specifically what advice are you looking for? Do you need help setting up the LLC, or are you weighing the pros and cons?

Also, what state are you in? State laws can differ.

I'd say you're on the right track in setting up the LLC, personally I would not invest in RE without one. I took an asset protection class some time ago by Anderson Advisors. Just search YouTube for them and you'll find a treasure trove of vids. A fair warning: they can get complicated. Feel free to reply/message me if you have any questions or are looking for some properties in my area!

House Hacking and LLC's?

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