January 29th 2014
AM New York
Q. Are there any drawbacks to buying an apartment under an LLC? Can I still get a mortgage?
A. There are indeed some disadvantages to buying an apartment under a Limited Liability Company (LLC) formed for that purpose instead of buying under your own name, say our experts, but let’s start with the advantages first.
The benefits of LLC ownership include anonymity (your name will be shielded from public records, which means your boss/employees/kids’ friends’ parents won’t be able to find out how much you paid for your apartment), as well as tax benefits and asset and financial protection, says real estate attorney Rachel Kleiman of Braverman Greenspun.
But buying under an LLC will add an additional several thousand dollars or more to your closing costs–much of it relating to setting up the LLC itself.
“In New York, costs to form the Limited Liability Company could be expensive due to publication requirements,” says Kleiman. In addition to legal costs involved in taking title under an LLC, there are annual fees at the city and state level.
Furthermore, by holding the property under a corporate name, “you’ll also miss out on certain tax abatement programs such as STAR, etc., that are directed to individuals versus corporations,” notes real estate attorney Dean Roberts of Norris, McLaughlin & Marcus.
Perhaps more troubling, the pool of available apartments will be drastically limited.
“Not all co-op boards will permit this type of ownership,” says real estate broker Shirley Hackel of Warburg Realty.
Most likely, says real estate broker Gordon Roberts of Warburg Realty, “you’d have to limit your property selection to condos or buildings. I know of one co-op that purportedly allows shareholders to convert their ownership to an LLC after a minimum of two year’s ownership. Maybe there are others. But the vast majority of co-ops–which outnumber condos in Manhattan–require the accountability of individuals as shareholders, since an LLC might dissolve.”
You’ll have fewer mortgage options too. Federally-backed loans do not allow for a borrower to hold title as an LLC, so you’ll need to find a portfolio loan, says Robbie Gendels, a senior loan officer at National Cooperative Bank in Manhattan.
“It may be harder to find a fixed-rate portfolio loan and rates may be higher,” says Gendels. Additionally, she says, “many banks that do offer residential loans to an LLC also require the owners to sign personally.”
Buying under an LLC could hurt your neighbors’ ability to get mortgages or refinance, as lenders may not consider an apartment owned under an LLC as owner-occupied, says Roberta Axelrod, a real estate broker and asset manager at Time Equities.
As you consider your next step, “be sure to consult with an attorney and a financial adviser to analyze your own particular situation, weigh the pros and cons, and properly advise you from a legal and tax standpoint,” says Roberts, the real estate broker.
If you decide to proceed, remember to let your apartment insurance broker in on the ownership status, as “the LLC must be added to your apartment insurance policy as an additional interest,” says apartment insurance broker Jeff Schneider of Gotham Brokerage.