When Not to Use an LLC for an Investment Property

That title may have thrown you for a second.  As investors a Limited Liability Corporation (LLC) is one of the best tools we can use for investment properties for both liability and tax purposes.

However, there are some scenarios when using one does not make sense.

When Not to Use an LLC for an Investment Property

1.) House Hacking, FHA Loan, etc.

If you plan on living in the home and leverage loans designed for owner occupants then you would not want to purchase in an LLC, but rather your own name.

LLC’s cannot procure certain loans, such as ones back by the Federal Housing Authority (FHA).  That loan needs to be in your own name.

If you plan to refinance out of that home and move to the next house hack, then at that point flipping it into an LLC can make sense.

2.) Low Down Payment Traditional Loans

As stated above you really can’t get the traditional homebuyer loans using an LLC, which also eliminates low down payment loans for the most part.

Putting down 20-25% will basically be standard when buying with an LLC.   If you don’t have that kind of down payment money then an LLC is probably not the right move for you.

Protection Though

So if we aren’t in a position where leveraging an LLC makes sense how can we be protected?

It’s simple – good old insurance.  It may not be perfect but it has worked for a century, just be sure you have the proper coverage.

Be sure to work through all the insurance options with your agent so nothing slips through the cracks and you and your investment is covered.

Same goes for when using an LLC, be sure to have your lawyer or accountant create it for you and structure it to your needs.

There are many variables in the real estate investing game, but in the end it is not rocket science.  Due diligence and some discipline go a long way.


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