If you’ve ever wanted to know if you could house hack while using an LLC – the answer is yes, you can. However, just because you can – doesn’t mean you should. Although purchasing a rental property with an LLC can be a good idea, I believe that anyone purchasing a property with the primary goal of house hacking should not purchase their property with an LLC.
So, in this post, I’m going to share my thoughts on house hacking with an LLC.
Table of Contents
Should you house hack with an LLC?
I don’t believe you should house hack with an LLC – especially if you’re a first-time homebuyer.
When you purchase property with an LLC, it’s basically a company buying the property. And, If you’re new to purchasing real estate – you might not know why that matters. Here’s why:
| Purchase House Hack With LLC | Purchase House Hack Without LLC | |
|---|---|---|
| Down payment amount? | 15%-20%+ | 3%+ |
| Interest rates? | Higher | As low as possible |
| First-time homebuyer benefits? | No | Yes |
| Home buying programs and grants? | Maybe | Yes |
| Property tax benefits? | No | Yes |
| Less personal liability? | Yes | No |
As you can see in the table above, purchasing a property with an LLC makes getting started more difficult. But, once you’ve started – it comes with the benefit of reducing your personal liability should something go wrong.
On the flip side – if you’re new to house hacking, purchasing your property without an LLC will allow you to get in the game much sooner and make it easier to be successful (in addition to using our house hacking guide).
Why I chose not to house hack with an LLC
I got my start in real estate and owning property by house hacking a duplex.
Before purchasing the duplex, I had considered using an LLC to help limit my personal liability. I had owned several LLCs before and thought it would be a good idea to use a new LLC for purchasing property – especially since all the places I rented from property management companies were using them.
Thankfully, while going through the home-buying process, I shared my thoughts with my lender #2 (I went through 2 lenders before finding a good, reliable one) and he gave me a lot of information that helped me make a good decision.
My lender was a former landlord and still owned several investment properties. In a 1.5-hour phone call, he shared the pros and cons of rental property, gave me his recommendations, and ran the numbers for both house hacking with an LLC and house hacking without an LLC.
After doing as much research as I could (I was traveling through Southeast Asia at the time and had spotty internet) – I decided to follow his recommendations and not use an LLC. By not using an LLC to purchase my house hack, I was able to save close to $35,000 in upfront money through:
- a first-time homebuyer program
- owner-occupied financing & tax benefits
- and another program that removed some restrictions for buying a multifamily property with a low down payment.
Honestly, if I needed to bring an additional $35,000 to the table in order to close on my house hack property – I wouldn’t have been able to afford it without needing help from my girlfriend (and I doubt we could have afforded it even with her help).
But, by not using an LLC, I was able to not only afford to house hack much sooner but also afford to renovate the disgusting unit (see photo below) I was going to live in and make it liveable for both me and my girlfriend (who eventually became my wife).
Frequently Asked Questions:
Who should house hack with an LLC?
The people that should house hack with an LLC are people that already have enough assets and wealth that make it risky not to purchase a house hack with an LLC. This way, if done correctly, they won’t have to worry about their personal assets being affected if something bad happens and they get sued.
I would also recommend consulting with a real estate attorney in your local area if you plan on purchasing a house hack with a partner or friend. In situations like that, I could see the benefits of using an LLC possibly outweighing the negatives.
