Fact: People love to sue landlords. That’s one reason it makes sense to form an LLC for rental properties. If a landlord is personally sued, personal assets such as one’s home, car, and bank accounts are up for grabs. If an LLC is sued, only the business’s assets are vulnerable. LLC stands for “limited liability company.” An LLC is a business structure that protects business owners from personal liability for the LLC’s debts, according to Legal Zoom.
The importance of legal expertise cannot be overemphasized when forming an LLC. The purpose of this article is to give food for thought. Be sure to consult an attorney. Read on for broad brushstrokes of when it makes sense to form an LLC for rental properties.
Advantages of a Rental Property LLC
- Personal assets are protected from sue-happy tenants or neighbors.
- Tax deductions and other advantages.
- Flexibility with ownership, it’s easy to add or delete members of an LLC.
Disadvantages of a Rental Property LLC
- Added administrative costs and fees. No surprise, there’s money involved in setting it up and filing. Some states require annual renewal, which costs money.
- Residing in one state and having the LLC in another could cause a big tax headache.
- Separate tax return as well as separate bank accounts and accounting books are required.
- Banks aren’t keen to give conventional mortgages to an LLC.
Though generally the same in nature, filing for an LLC varies by state. A quick Google search of “how to file an LLC in [name of state]” will provide plenty of information to get you started. Also note, the when to file for an LLC is important. Best to have your LLC established before shopping for properties and have the LLC as the buyer. Yes, it can be changed later, but who needs more outlays of time and money?
Whether you have a single rental property or a large portfolio of them, Place Tenants can help with your property management needs. Call 800-886-1193 or email [email protected] to learn how. We look forward to connecting with you.
iStock/Stanislau Kharvtanovich
