Buying Property Through A Company – Is It Right For You?

Buying Property Through A Company – Is It Right For You?

January 15, 2021

Produced by:
Elizabeth Welgemoed

Elizabeth is a Senior Content Marketing Manager with over 10 years of experience in the field. Having authored or edited 1,000+ online articles, she is a prolific content producer with a focus on the real estate vertical.

Today it’s not just individuals that buy homes, companies do it too. There are many more LLCs buying homes today than individuals and for good reason.

While it’s not the right choice for everyone, there are valid reasons to look at it the option and see if it’s right for you. Here’s everything you should consider.

What type of investor are you?

First, think about your intentions. Are you investing or trading? A trader is someone who fixes and flips properties. You buy a property, fix it up and sell it within a few short months. You have a few holding costs and have considerable profits (if you do it right).

Most traders buy homes as an LLC. It separates the income from their personal income, which often means lower tax liabilities. Rather than adding to your individual adjusted gross income, you pay corporation taxes on the profits. This leaves your individual income alone (and lowers it).

If you intend to buy and hold the properties, though, you’re an investor. You buy the properties with the intent to make a profit and have regular cash flow. Whether or not you should buy homes as a company when you’re an investor depends on a variety of factors.

Deciding If Buying Property Through A Company Is Right For You

There are pros and cons of buying a property through a company. Once you decide the type of investor you are, you have somewhat of an idea of where you stand. If you fix and flip, it’s a no-brainer – an LLC is the way to go.

If you’re an investor and buy and hold, it will depend on the following factors:

  • What’s your income? Will the profits from the property investments put you in a much higher tax bracket? If so, it will offset your profits and make buying through a company ideal. 

There’s an exception, though. Do you have a low-income earning spouse? If so, you can buy the properties through him/her and not affect your personal income tax situation as much. 

In some cases, you’ll even show a loss (on paper), especially if you’re constantly building your portfolio. If you offset the capital gains until later in life when you retire, you’ll likely be in a lower income tax bracket.

You’ll need to do some forecasting to see what would suit you better. But if the taxes will supersede your profits, it’s well worth it.

  • Do you need the write-offs? While you can write off some expenses as an individual investor, companies get a lot more tax breaks. Writing off the full amount of mortgage interest, offsetting the income until you draw it, and other business expenses that come with running a business often leave investors with more money.
  • Will you leave the properties for your beneficiaries? If your beneficiaries inherit a company versus individual homes, they’ll likely pay less inheritance tax, which means they’ll receive a larger portion of your estate rather than handing it over to Uncle Sam.

The Benefits Of Buying A House Through A Company

It may seem like a hassle to form an LLC and then find lenders who offer to finance LLCs, but here’s why it may be worth it:

  • Tax savings – We’ll say it again, the tax savings is the number one reason. Corporate taxes are about half of the taxes you’d pay as an individual, depending on your current tax bracket. Rather than having a pass-through income, you’d pay taxes as a corporation and only pay individual taxes on any money you withdraw for yourself, which you control.
  • Privacy – If you don’t want your real estate ownership to be public record, buy through a company. It’s pretty hard for anyone to figure out the name of your LLC (unless you share it), which means complete strangers or even people close to you can’t find out how much you paid for a home or what you own, which is important especially as you build your portfolio.
  • Liability protection – Owning property under an LLC protects you financially. If someone fell and got hurt on your property, they could sue you. If you owned the property as an individual, they come after your assets. Instead, owning it as an LLC means they can only go after the business, leaving your personal assets alone.

The Downsides Of Buying A House Through A Company

  • No traditional financing – It may be harder to find financing through an LLC. You can’t get traditional financing in most cases – you’ll have to work with a reputable hard money lender to get the financing you need.
  • Blending the line between business and personal – If you aren’t a business person, it can be easy to blend the lines between your business and personal income. This creates havoc at tax time, though. It’s important to understand the clear line between the two and obey it. If you have trouble, you may need to hire a qualified CPA and attorney to oversee your operations.
  • Some associations don’t like it – If you plan to invest in buildings, such as apartment or condo buildings, you may see some resistance from the sellers. Many don’t like a ‘business’ owning a unit even though there’s a face behind the business.

Should You Buy A Property Through A Company?

Each investor has a different answer. Think about what you want out of the investment and how it will affect you at tax time.

Is this a one-off investment for you or will you build a portfolio? Will you live off the income or are you growing your retirement income so you can travel the world in your golden years?

These are questions you must answer as you figure out if owning property through an LLC is the right answer. The privacy, tax benefits, and financing options can’t be beaten, but look at the big picture before you decide what’s right for you.