Can I selling my house to my own company and rent it back to myself?

Question

My wife and I are in the process of getting a divorce. Even though we don't get along in the marriage we are still good friends. I want to start investing in rental properties. I have been contemplating creating an LLC then refinancing my home we both own into the LLC. I then wanted to utilize some of the equity in our current home to buy her a place (Likely a foreclosure) to live also to be owned by the LLC. We would both make rent payments to the LLC and then utilize the equity and cash flow to continue purchasing additional rental properties.

My question is, has anyone done anything like this, is it possible and any pitfalls or land minds I need to be aware of besides being in business with my ex? I know thats a big one, but something I'm potentially prepared to do, through a jointly owned LLC.

Any advice would be greatly appreciated!!!

Thanks!

Gene

My question is, has anyone done anything like this, is it possible and any pitfalls or land minds I need to be aware of besides being in business with my ex? I know thats a big one, but something I'm potentially prepared to do, through a jointly owned LLC.

Any advice would be greatly appreciated!!!

Thanks!

Gene

Whitney Campbell · Answer

What if you bought a home and rehabbed it then sold it to your llc as a rental property but you don’t live in the rental? Will it be the same concept as far as taxes go?

Rob Beland · Answer

Regardless of whatever you have for ideas to create entities and buy properties, you have to know one thing @Gene Hassell, you can't create an LLC and then charge yourself rent. You can but you can't claim it on your taxes. A Single member LLC is essentially non-existent in the eyes of the IRS. You can't claim income from yourself on the tax return for your own LLC.

You can create all of the LLCs that you want but the bank is going to require you to personally guarantee every loan. You're trying to game the system. It's not going to work out in the end. As the owner of the house and the owner of the LLC just do everything you were planning on doing in your original post but do it in your own name and you will save yourself the hassle and extra money spent on tax returns that don't result in any tax savings.

Jon Holdman · Answer

Getting a loan for a property owned by an LLC means a commercial type loan.  That means a slightly higher interest rate, higher down payments and short amortization periods.  Prepayment penalties, balloons and ARMs are all candidates.  A 30 year fixed rate loan won't be an option.

Paying rent into the LLC will have zero effect on your taxes or your ability to qualify for more loans.  If anything it will hurt because you can't deduct your rent payments as an expense but the rental income would be income.

You're making things too complicated.  Refinance the house you are going to live in and transfer it into your name only.  Then you make the payments on that.  I think you want to get cash out and have her use that to buy her own house.  Do that.  She lives in it and makes the payments.  The two of you sort out how to handle the part of your payment that was for the money she used to buy her house.   Really, what you're doing is you are buying the house from you and her and cashing out her part of the equity.

Account Closed · Answer

You might be able to get a lender to refinance it into  an LLC as long as you personal guarantee the loan. Most lenders are aware of all the LLC fraud out there so be honest with the lender.

Joe Gore

Whitney Campbell · Answer

What if you bought a home and rehabbed it then sold it to your llc as a rental property but you don’t live in the rental? Will it be the same concept as far as taxes go

Kevin Gorinshteyn · Answer

thank you for clarifying

Rob Beland · Answer

1 - As far as asset protection for your personal residence, all you need is a homestead

2 - A SMLLC will never build enough history to take out loans on its own credit without a personal guarantee unless you are Bill Gates

3 - Even if it's a rental property, it's his or his wife (ex wife's) primary residence so maintenance costs are not tax deductible whether it's in his own name, her name, an LLC, or any other corporate entity

4 - This scenario would not be allowed by the IRS

Kevin Gorinshteyn · Answer

Hello Jon,

I have a couple of questions.

1. What about the benefits of asset protection in this case?  If he puts the LLC in a trust (that owns the home), woun't that offer some protection?

2. Also wouldn't the LLC would start building credit history and eventually take out loans without personal guarantees?

3.  Wouldn't the LLC be able to write off bigger portions of maintenance costs because it's rental property?

4.  Most importantly, would this scenario be even allowed with the "arms length" clause?

thank you

Charles Morgan · Answer

Grats on staying friends with your ex. My ex. and I still get along great 14 years after the divorce.

Can I selling my house to my own company and rent it back to myself?

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