Business Management

Do Landlords Need an LLC for Rental Property?

Expertise: Mortgages & Creative Financing, Buying & Selling Houses, Personal Finance, Real Estate Investing Basics
42 Articles Written
LLC written in blue marker on a spiral notebook laying on desk with small potted plant and other desk decor


If you are a real estate investor or thinking of becoming one, it is imperative that you understand the legal issues involved in order to protect your assets. One of the most important decisions you have to make is the legal structuring of your real estate business—or what is more commonly known as an LLC. Do landlords need an LLC for rental property?

In short, it depends on your situation and your investing goals. How many properties do you own? What states are they in? Are you wanting an LLC’s legal protection, or would it benefit your financing options… or do you just want to sound cool and say you own a company?

(In all seriousness, that last point can be a big driver for investors. And it’s no way to make a decision.)

“LLC” is short for limited liability company, a newer form of business entity that offers benefits that partnerships and corporations do not guarantee. It protects investors from themselves and others.

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What Is an LLC?

A limited liability company is an entity that you can either own solely or partially.

Related: What Does a Property Manager Do? Here’s the Job Description

The main objective of forming a real estate LLC is to draw a line between your personal and business assets. This way, in the event that you run into any legal or financial trouble, no one can seize your personal assets to pay off the debts you owe.

Likewise, it is difficult to use the LLC’s assets for your own personal gain.

The main reason to purchase a property in an LLC is to insulate your personal assets from activities that occur at the property. Meaning, when you hold a property in an LLC and run the LLC properly (this is key!), your risk ends at the LLC should anything occur on the property—like a slip, trip, or fall.

Requirements for a Real Estate LLC

Opening a real estate LLC requires you to do three things:

  1. Keep the property in good repair, which protects you (and your business) from being found negligent should something happen.
  2. Hold the title of the property in the LLC. If the property is not titled to the LLC, you do not get to benefit from the legal structure of the LLC.
  3. Run the LLC as a business in order to maintain your corporate veil.

What does “running the LLC as a business” mean? There are a few standards. It must:

  • Have its own bank account to receive income and pay expenses.
  • Maintain standard bookkeeping records.
  • Maintain corporate records (think meetings and minutes) according to the laws of the state of incorporation.
  • Remain in good standing with the state of incorporation.
  • Not commingle business and personal funds.

How to Purchase Property in an LLC

Using an LLC for rental property requires you to use commercial, not personal, financing since the loan is made to a business rather than an individual. Up until recently, commercial financing received a bad rap—most commercial lending programs did not offer 30-year fixed financing or competitive interest rates, required 25% or more down, and were riddled with high closing costs and prepayment penalties if you sold the asset within three to five years.

Today, there are many commercial lending programs that offer 30-year fixed rates, 20% down payment programs, competitive rates, and reasonable closing costs. In addition, they are oftentimes more competitive than a conventional loan should you do a cash-out refinance, such as when you are doing a BRRRR.

Related: Investment Property Loans: The Ultimate Guide to Funding Your Deals

Purchasing a property in an LLC is a straightforward process. Let’s break it down into its integral parts.

Consult with Experts

Discuss your investing strategy with a lawyer and CPA. You’ll want to talk about legal and tax structures that can protect you and your business. Don’t skip this step! If you are flipping, you may need a different legal structure than if you are buying and holding.

Don’t let cost deter you from getting solid legal and tax advice. You can pay a lawyer and a CPA for an hour to put together the strategy and use a reputable incorporation firm to set up the advised structure.

Related: The BiggerPockets Guide to Landlord Insurance

Establish Your LLC

Different states have different requirements for LLCs, and you’ll want to check with your state business office for the details. Most will require you to file articles of incorporation. They may also request you write and sign an operating agreement While there are templates available online, the best option is to consult a lawyer, who can develop an operating agreement specific to you.

Again, don’t skimp here. The operating agreement will determine how assets are structured in the business in the event of a lawsuit.

Once your Articles of Incorporation have been approved, download a Certificate of Good Standing from your state business office website. You should also secure an EIN (employer identification number) from the IRS.

Related: The Traditional LLC vs. the Series LLC: Which Is Better for Real Estate Investors?

Benefits of an LLC for Rental Property

There’s a good reason LLCs are attractive to real estate investors: They offer both asset protection and tax advantages.

Asset Protection

A rental property’s biggest liability is if a tenant slips and falls—or otherwise hurts themselves—and decides to sue you. A properly structured LLC for rental property separates you personally from your company. The only things at risk are the assets that the LLC owns. That means no one can take your personal residence or other assets.

Tax Advantages

LLCs offer a number of tax benefits. Basically, because it is a business, you can run it and treat it as a business. That means you can write off expenses and minimize taxes—a huge pro of investing through an LLC.

Plus, an LLC allows you to enjoy the benefits of pass-through taxation. Many corporation owners usually pay a double tax: They must file both their business income and personal income tax statements.

This is not the case with a real estate LLC, which excludes you from paying business taxes. This is thanks to pass-through taxation, which allows real estate investors to avoid double taxation by holding property in an LLC. You can report business profits or losses at a lower rate through your individual tax returns.

However, the exact benefits available to each LLC depend on how it is structured. That’s why it is so important to consult with local experts before filing paperwork with the state.

Builds Credit for Your Business

The ability to build credit for your business is an often underrated benefit of establishing a real estate LLC. An EIN allows your business to build credit without affecting or using your personal credit.

This can be a powerful tool for you as a real estate investor. And assuming your personal credit profile is in good standing as well, that business credit essentially doubles your borrowing power.

Operational Flexibility

An LLC is fairly flexible. You don’t need thousands of documents or to issue stock. An LLC can be set up fairly easily and inexpensively and requires just a few documents—making it an ideal business strategy for real estate investors.

Disadvantages of an LLC for Rental Property

Whoa, wait—there are disadvantages? Yes! If LLCs were always the best choice, every investor would elect to file. But that’s not the case. Here’s what to consider.

Cost

An LLC can dig into your cash flow. For instance, California requires all LLCs to pay an $800-per-year fee—even if they’re registered in another state.

Additionally, some accountants charge more for filing LLC returns. (And yes, you need an accountant.) That can ring up to another $800 per year. Don’t use one of those cheap online do-it-yourself tax programs—one of the biggest financial benefits of rental properties are the tax advantages. If you aren’t set up correctly, you’ll miss out on a lot of those.

Complexity

LLCs can get complex. There are many ways to set up the business, and there are many things that can go wrong. You’ll need to do separate bookkeeping for each LLC—which can be expensive and time-consuming. You could make mistakes, do the wrong things, and compromise the business or the accounts. Then, your personal assets are no longer protected.

Financing

Many lenders won’t lend to LLCs. And even if they do, the funds will be backed by your personal name anyway. In general, getting financing for properties under an LLC name can be very difficult.

Non-Foolproof Asset Protection

An LLC for rental property doesn’t always protect you from lawsuits. Consult with your lawyer to have a full understanding of any vulnerabilities your LLC might have. Also, if a lawsuit does happen, sometimes having an LLC can actually complicate the process.

Triggering Due-on-Sale Clauses

This one only matters if you already own a financed property. Oftentimes, investors will buy properties under their personal name and then quitclaim it to an LLC. Doing so could trigger the "due-on-sale" clause in your loan agreement. That means you would owe the remainder of the mortgage immediately.

Extreme macro or close up of the word LAW-SUIT. Very shallow depth of field is intentional and shows only the word LAW-SUIT in focus.

Considerations When Using an LLC for Rental Property

While the list of drawbacks is considerable, many investors believe the asset protection and tax advantages alone are major reasons to set up an LLC. Ready to start? Here are questions to ask your lawyer or accountant beforehand.

  1. Should you use an umbrella LLC? You don't have to have each property in its own LLC. But consider how much equity you can afford to lose if there is a lawsuit. Having all your property under one LLC might put your entire portfolio at risk. However, individual LLCs are expensive to form and maintain.
  2. What state should I file in? Discuss if you should file the LLC in the state the property is in rather than your home state. (This assumes you’re buying property out-of-state.) This can help keep costs down, as well, as the LLC won’t be transacting as a foreign business.
  3. Should I have a separate LLC for flipping? Work with your CPA to determine how to keep rental real estate activities separate from your flipping activities. The two types of income are treated differently.
  4. Should I file in Wyoming or Nevada? You will find many posts on BiggerPockets regarding holding companies in Wyoming and Nevada, or any state with strong charging order protection. This means that if something happens on a property, it’s harder for a lawyer to unravel all of your LLCs or get to your personal property. This may be overkill for many LLCs, but it’s worthy of consideration.

LLCs for Rental Property: Frequently Asked Questions

We asked CPA (and BiggerPockets expert) Amanda Han to answer readers’ most-common questions about establishing LLCs for rental property. Here’s what you need to know.

Do I Need an LLC to Write Off My Expenses?

Not necessarily. Let’s say you attend a business conference in Las Vegas. Even if you don’t have an LLC, you should be able to write off expenses like your flight and the hotel. As long as the expenses are ordinary and necessary as they relate to your real estate business, chances are they will be tax deductible.

Related: The Ultimate Guide to Real Estate Investment Tax Benefits

Can I Write Off Every Penny I Spend?

Having an LLC does not automatically make all your expenses tax deductible. You would still need to be able to show that the expenses are business-related. For example, your cousin is getting married in Las Vegas and you are one of the attendees. You fly there, stay in a hotel, and celebrate the weekend with friends and family. No real estate or other business was conducted while you were there.

It just so happened that you opened a new LLC for rental property a few months ago. You might think, “If I pay for the cost of these trips with my LLC bank account, I should be able to write off my Vegas trip.” Unfortunately, you would be wrong. Neither the trip nor any of the expenses are related to your real estate or business activities.

How Much Will I Need to Pay?

All entities are not created equal. Certain states have high entity fees, and others have high maintenance costs. Before forming a legal entity, make sure that you have a clear understanding of what the formation and annual maintenance costs will be.

As with anything in investing and business, it is always a good idea to do a cost-benefit analysis prior to forming a legal entity such as an LLC. Only form a legal entity for your real estate business after you have a clear understanding of what benefit you will be receiving and after you ensure that it makes sense for your specific situation.

Disclaimer: This is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Consult with your own attorney, CPA, and/or other advisor regarding your specific situation.

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Questions about any of the above information? Advice to add?

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Whitney is a real estate investor and personal finance trainer whose vision is to launch 10,000 families on the path toward financial independence. After purchasing her first rental in 2002, and hi...
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    Melinda Harris New to Real Estate from Waldorf, MD
    Replied 11 months ago
    As a newbie investor, I had the same concern about whether to create the LLC or not when purchasing these properties. This article definitely has expanded my awareness and given me more direction. Thank you!!!
    Whitney Hutten Rental Property Investor from Boulder, CO
    Replied 11 months ago
    Glad you found value, Melinda!
    Shaquitta Robinson
    Replied 11 months ago
    Hi. Very informative. I need to find a CPA in my area.
    Whitney Hutten Rental Property Investor from Boulder, CO
    Replied 11 months ago
    Yes to the CPA part (the CPA doesn't have to be in your area though ;)
    John Lamb Rental Property Investor from Phoenix, AZ
    Replied 11 months ago
    What are some good commercial lenders you would recommend?
    Whitney Hutten Rental Property Investor from Boulder, CO
    Replied 11 months ago
    Hi John, Feel free to PM me and I can share.
    Bryce Cutler Investor from Wynantskill, New York
    Replied 11 months ago
    Hey Whitney, any recommendations on where to find those commercial loans that have 30 year terms with less than 20% down and low closing costs? I would love to earn more about that resource. Thanks in advance. Bryce
    Whitney Hutten Rental Property Investor from Boulder, CO
    Replied 11 months ago
    Bryce, I know of programs that have a 20% down investor program, but not less. Feel free to PM me.
    Sean Cullen Rental Property Investor from Warner Robins, GA
    Replied 11 months ago
    Great article! Thank you for sharing.
    Whitney Hutten Rental Property Investor from Boulder, CO
    Replied 11 months ago
    You bet, Sean!
    Ryan Mainwaring Rental Property Investor from Blacklick, OH
    Replied 11 months ago
    Hello whitney, I would love to know some commercial lenders who offer competitive rates for a brrr. Ryan
    Whitney Hutten Rental Property Investor from Boulder, CO
    Replied 11 months ago
    Sure. Feel free to PM me.
    Greg Carroll from Central MD
    Replied 11 months ago
    Thanks Whitney, great article. I am also a newbie and have yet to pull the trigger on my first deal (analysis paralysis?). I have already set up the LLC and got the EIN and the bank account. I have read that instead of holding all of the properties directly in the LLC, Land trusts can be used within the LLC for each or a few properties. This insulates you further and prevents loss of everything in the LLC, only touching whats in a specific trust.
    Whitney Hutten Rental Property Investor from Boulder, CO
    Replied 11 months ago
    Good for you Greg! Though all of those structures don't do you any good if you don't have a deal in them. Soooo.... what is it going to take for you to pull the trigger and get a deal done!
    Dave Rav from Summerville, SC
    Replied 11 months ago
    agree with @Whitney Hutten and others. Pull the trigger! my first property, a duplex, was in my own name as I knew no better. (you dont know it all as a novice, but you still have to start!)
    Rick Grubbs Rental Property Investor from Salisbury, NC
    Replied 11 months ago
    That's way to complicated and unnecessary, especially for starting out. Focus on getting some deals done instead and just get a good liability policy. I have a $2M policy on my units for $33 each per year. I have all my property in my own name and have one checking account. if the goal of RE investing is to create passive income focus on keeping it simple and easy to manage.
    Octavio N Morales
    Replied 4 months ago
    Hey man would you mind sharing yoir insurance?
    Jay Scott
    Replied 4 months ago
    Hi Rick...I agree. I spoke with both my attorney and my accountant. Both said I should be fine without an LLC for rental properties as long as I maintain a high umbrella policy (just in case), which I've always had since my father suggested this when I was younger. I have had and have LLCs (and S-Corps) for other businesses. In the case of rental properties, I was advised to keep it simple...no LLC. That may not be for everybody but that's what I was advised in my situation.
    Charles Walthour
    Replied 4 months ago
    Rick Grubbs, how do you write off business expenses?
    Melissa Zimmermann Real Estate Broker from Billings, MT
    Replied 4 months ago
    Hi Charles, maybe I can help. All of your expenses (i.e. mileage, advertising, repairs and maintenance etc) are still deductible against the rent income, whether you file Schedule E - Passive Investment or if you meet the Hours Test for your real estate to be a 'business' or 'ordinary income'.
    Sabine Miller
    Replied 4 months ago
    Rick - I would love to hear more about the insurance company you use. We just purchased our own 3rd property and while we have LLCs for our RE and Property Management business, we are holding the 3 homes in our own names.
    Whitney Hutten Rental Property Investor from Boulder, CO
    Replied 11 months ago
    You are spot on, Rick! Many new investors don't need to start here. This strategy is more for someone who must have commercial lending to start (which the reasons are many) and are stuck on how to actually get the LLC started.
    Dave Rav from Summerville, SC
    Replied 11 months ago
    Great post. I've so glad you talked about how to properly USE an LLC. Just having the name doesn't quite cut it - you need to protect from pierce of the corporate veil! Treating your LLC like a true biz, such as all financials separate, helps.
    Whitney Hutten Rental Property Investor from Boulder, CO
    Replied 10 months ago
    Thank you, Dave.
    Anthony O. Porter Rental Property Investor from Atlanta, GA
    Replied 10 months ago
    Whitney - Greta article. Very informative.
    Whitney Hutten Rental Property Investor from Boulder, CO
    Replied 10 months ago
    Thank you, Anthony.
    Tim Achey Real Estate Agent from Scottsdale, Arizona
    Replied 10 months ago
    In AZ the state is making big changes in the LLC statutes effective in 2019 and 2020, but Arizona real estate investors can amend their documents to supersede some changes and further protect themselves.
    Sheri Lemken
    Replied 9 months ago
    Great article. If I were to purchase a property in my own name could it later be transferred to my LLC? We are planning on living in the home and then making it a rental after our son graduates high school in 2021.
    Whitney Hutten Rental Property Investor from Boulder, CO
    Replied 9 months ago
    Hi Sheri, it's best to talk to a lawyer and your lender as transferring the title to an LLC technically triggers the "due on sale clause" of most loans. Some lenders have assumption guidelines in place. PM me if you have Q's.
    Jeff Plotkin Rental Property Investor from New York City, NY
    Replied 5 months ago
    Hi Whitney, I am looking to buy my second buy-and-hold property and would like the protection that an LLC offers. Do most investors who go this route simply get a commercial loan? I have relationships with conventional mortgage lenders that I would like to leverage, but that would mean I would need to keep the property in my name.
    Saran Sivashanmugam from Cedar Park, TX
    Replied 4 months ago
    That's probably because of the "due-on-sale" clause in your personal mortgages
    Jay K. Investor from San Antonio
    Replied 5 months ago
    I have 3 properties (TX) and visited a CPA today. He said because I have mortgages on all 3 propertirs, I could not put them in an LLC. He advised me to visit an attorney to better help me. I asked if he knew any real estate attorneys. He said any attorney could help, does not have to be a real estate attorney. I dont feel very comfortable with that answer. Could that possibly be true? From what I have read, I dont remember anything stating the property must be free and clear.
    DJ Cespedes Attorney from Oakland, CA
    Replied 4 months ago
    Hi Jay, Your instincts are on point. I do not agree with the advice provided by that CPA. I'm an Attorney, and I plan to work with a Real Estate Attorney since Real Estate Law is outside of my practice area. There is sometimes a misconception that Attorneys should be able to handle all legal related matters. However, the law is compromised of many different practice areas, and we all have our areas of expertise. To take it a step further, even within a specific practice area, you often have smaller sub-areas; so just because an attorney practices Real Estate Law does not mean that they are competent to help you with your specific RE issue. Find an attorney that is "competent on the issues that you need assistance with". I know I'm late to the party, but hope this helps.
    Account Closed Financial Advisor from Boca Raton, FL
    Replied 4 months ago
    Hey would you like to earn up to $150,000 within 14 working days
    Ed B. Real Estate Investor from Sacramento, CA
    Replied 4 months ago
    Jay, I'd run from that CPA. His advice that you could not put them into an LLC because they have a mortgage is lousy, or wrong, and possibly both. Go ahead and transfer them. As long as you keep up the payments, the bank will likely not care who owns them.
    John Acheson Investor from Sonoma County, CA
    Replied 4 months ago
    "20% down 30 year commercial financing?" PLEASE EXPAND on this statement, in CA/OR we're unable to find any banks/lenders/hard money that can come down to 20% LTV based on the offer price and have never heard of 30 year terms on commercial financing. Have research dozens of programs and most are 30% down with a 20 maybe 25 year amortization for int.
    Whitney Hutten Rental Property Investor from Boulder, CO
    Replied 4 months ago
    Lending terms have definitely changed since this was orginally published. However, 30yr fixed commercial terms are definitely possible! Even today :)
    EJ K. from Quad cities iowa
    Replied 4 months ago
    Would this be something that you’d say is mandated for high income W2 people with rentals? Why not max our insurance and get an umbrella?
    Ed B. Real Estate Investor from Sacramento, CA
    Replied 4 months ago
    Maxing out insurance is a better idea than using an LLC.
    Raj Kothari
    Replied 4 months ago
    Is it easier to pass the underlying property in a LLC to kids without additional paperwork? Can they be added anytime to the LLC?
    Whitney Hutten Rental Property Investor from Boulder, CO
    Replied 4 months ago
    HI Raj, I would talk to a lawyer about this. It might be as simple as amending the Operating Agreement.
    Charles Seaman Rental Property Investor from Charlotte, NC
    Replied 4 months ago
    I normally focus on commercial investing and have LLC's with multiple members, so this doesn't apply to me, but it might be worth mentioning for others. If you have a single-member LLC, it's considered a disregarded entity and doesn't have all of the benefits that a multiple member LLC does. Perhaps you might want to consider writing another article on this topic.
    Thaddeus Koster
    Replied 4 months ago
    In Washington state, an LLC must use a lawyer to file evictions in court. You cannot self-represent as a landlord if your property is in an LLC. I learned this the expensive way.
    Sabine Miller
    Replied 4 months ago
    Thaddeus - same for Chicago. Beware
    Charles Walthour
    Replied 4 months ago
    Whitney, my wife and I have bought property and are building a duplex in a popular vacation spot in Florida. We will actually live in one side of the building and rent the other side to vacationers. In a year or two, if this is profitable, we may look into building another just for the two rental incomes, but we won't be buying any more than that. With 3 rentals, would I need to have an LLC? Can't I have a business name without an LLC? Can't I write off expenses of these rentals without an LLC?
    Whitney Hutten Rental Property Investor from Boulder, CO
    Replied 4 months ago
    You can definitely have a business without setting up an LLC. Talk to a lawyer and make sure that is a good move for you. Talk to a CPA to understand how best to document everything to maximize deductions and keep your books clean.
    Jeff D. Real Estate Investor from Portland, Oregon
    Replied 4 months ago
    Thanks for the very straightforward, easy to understand summary of pros and cons of LLC's. This would have made things way easier a few years back. And thanks for mentioning charging order protection. Yes to another article on this subject! Specifically an article that goes deeper (but in the same straightforward style) in Wyoming and Nevada charging order protection. Charging order protection is seldom even mentioned in most things written about whether to hold property in an LLC or not. They're all about how LLC's can protect your personal residence (yet that's built in in several states), and all about how LLC's can trigger due on sale clauses (very rare in my opinion). Seldom ever mentioned is the one minor detail about LLC's not protecting you from losing the income of asset, or the asset itself.
    Curt Smith Rental Property Investor from Clarkston, GA
    Replied 4 months ago
    I found this article to be misleading and giving the wrong impression. Almost seemed like the author was not very well informed; - the default state of an LLC is "pass through" a non-entity. This is the correct and ideal entity to title real estate into because there IS NO TAX RETURN for the LLC. All income and issues pass through to the owners 1040 return. Odd the author made it seem like there was a separate (extra cost) for titling in an LLC??? - I'm not advocating trying to use subterfuge to avoid Californias LLC fees but i wouldn't title into an LLC anyway. I would put into a land trust "123 Main st Family trust" and the benefical interest would be the LLC. Its not hiding that the ultimate owner is an LLC, just a side effect of ideal structering. - Due an sale; You must not have heard the FANNIE/Freddy annoucement mid last year, a Trump nudging of the GSE's to be more business friendly; Titling into an LLC no longer risks the due on sale clause (as if it ever did). The comments about writing off expenses etc etc is mis informed since the proper way to hold rentals if not in ones personal name, is in a pass through LLC which is transparent to tax issues, everytying falls onto the 1040 schedule E as if the LLC was not the titled entity. One interesting strategy which is what I do, which has no taxation, tax savings advantanges, it does reduce the audit risk a little; title in an multimember LLC, file a 1065 tax return, partnership, which pulls the Sched E's off the 1040, and the rentals up into the 1065. Cleaning up the 1040 tax return if one has alot of rentals, does reduce the audit risk for the 1040. No advantages for extra deductkoins, that is a wildly wrong suggestion. Rental tax regs are straightforward, simple and don't change depending on how the house is titled. It would change though if some mis informed CPA advised (which I have heard of) titling rentals in an S-corp/LLC taxed as an s-corp. This is a very bad idea!!! In general I found the article to be weak and some what mis-leading. Folks you need to study up on sched E, rental tax regs. This BP book is very very good: https://www.biggerpockets.com/store/advanced-tax-strategies-ultimate
    Kenneth Beaufort
    Replied 4 months ago
    I believe Curt Smith hit the nail on the head, about 8 hours ago. REPT is the way to go. I saw this after my post 8 hours from now.
    Michael Sepe
    Replied 4 months ago
    Curt!!! Yes Yes Yes.... as a newbie, one rental property under my belt (May 2020) My CPA was trying to educate me on the 1065 tax return w/ partnership, schedule E.
    Steve Morris Real Estate Broker from Portland, OR
    Replied 4 months ago
    Not real convincing arguments. Cost - $800/year for recourse and liability protection is a nit. Complexity - There are reasons an operating agreement gets complex and usually has to do with multiple partners. If you hold the property personally, odds are you'll have the same complexity without a LLC as with. Financing - THis is rare these days and easily solved 99% of the time by telling your lender up front. Non-Foolproof Asset Protection = Much better than holding the propety personally. Triggering Due-on-Sale Clauses - Again, tell your lender. As long as the original borrower is a controlling member of the LLC it isn't a problem. DISCLAIMER - Am NOT a lender, so anything I finance confirm what I said with them.
    Caroline Gerardo Real Estate Investor from Laguna Niguel, California
    Replied 4 months ago
    Cost to set up: attorney/CPA advise about $1000 annual $800 in CA or other state fees. @Curt Smith if you hold title in LLC you need to file K-1 return and pass the income to your 1040 - you still have to file 2 tax returns which CPA charges for the extra return. Fannie and Freddie do not allow investors to hold title in the name of an LLC or to change the vesting after the fact. Fannie and Freddie do find out as your fire insurance agent annually will put the title on the policy that they send to the lender in the name of the LLC and they could accelerate especially if you pay late or raise flags like ask for forbearance on investment property. If you don't match up the insurance with the title then there really is no legal protection and insurance might balk at paying a claim. There are conventional lenders who allow LLC, quite a few. You cannot get a commercial loan with a brand new LLC that has net zero or no net income tax filed- two years tax cycles must pass to do this and commercial doesn't want loans under $350000. Some of her advise is good, some clouded. LLC is expensive. LLC is good for multi million dollar commercial real estate and every entity in a large organization would have separate LLC's flowing to an SCORP - to copy this model as a new investor is not practical or prudent and will eat up your time and profit. Get great insurance, pay attention to health and safety issues in the subject, don't cut corners on electrical, visit the subject regularly to look for possible hazards (tenant rigged a fireworks platform off the balcony - using a turkey fryer near wood siding, carbon monoxide smoke detectors removed...) fit it.
    George Lui Investor from Palo Alto, CA
    Replied 4 months ago
    Great article! I contemplated this scenario earlier after my 2nd investment. I'm still a newbie starter so I ended up with an umbrella policy (w/ adequate coverage) to hedge against "issues". Nevertheless, this article was great reinforcement of my decision.
    Eric DeNardo New to Real Estate from Denver
    Replied 4 months ago
    I’m a new investor (no properties yet). Is it worth creating an LLC before buying my first property?
    Gerald Harris
    Replied 4 months ago
    Eric, I am trying to learn as much as possible to make me a better landlord as well...I have been told (not confirmed by research as of yet) that you can move your properties into an LLC later and don't have to have one prior to, and it (same info) wouldn't benefit you from having an LLC first...
    Loren Clive Residential Real Estate Broker from Haiku, HI
    Replied 4 months ago
    yes you can always quitclaim your properties later, so Eric, I would not go to the expenses of creating a LLC at this point.
    Whitney Hutten Rental Property Investor from Boulder, CO
    Replied 4 months ago
    Eric, I moved my properties over via warranty deed to an LLC after the fact.
    Lear R. Investor from El Paso, TX
    Replied 4 months ago
    My god the rules are changing fast. I have a LLC , but I may change to a S- Corp, as a LLC it’s a double edge sword, you can claim a fair amount, and declare losses on your tax return. However it costs when it’s time to get financing for a new property, I ran around with this dilemma for more years than I care to admit to. Life/Corporations/LLCs, it’s complex, stay focused on your goal... it is not EZ
    Loren Clive Residential Real Estate Broker from Haiku, HI
    Replied 4 months ago
    I have a LLC, but honestly, it's way easier to just have everything in your personal name, particularly because of financing considerations, increased registration, accounting and insurance expenses, etc. LLCs are useful if you have partners but otherwise not worth it.
    Giselle Gil Heredia
    Replied 4 months ago
    Are corporations not a good option at all for rentals portfolios?
    Whitney Hutten Rental Property Investor from Boulder, CO
    Replied 4 months ago
    The better question, Giselle, is an LLC good for your asset protection situation? There are pros and cons to LLCs and S-corps. Personally, my legal and tax team has advised against S-Corps for rental so I can keep the income passive, so an LLC covers my needs. But for another's situation, they may need the S-Corp.
    Kenneth Beaufort
    Replied 4 months ago
    What are your thoughts on REPT, Real Estate Privacy Trusts instead of individual LLC's. LLC you pay to form the LLC and you pay each year. A REPT you pay once to set it up.
    Kenneth Beaufort
    Replied 4 months ago
    I believe Curt Smith hit the nail on the head, about 8 hours ago. REPT is the way to go.
    Charlie Tunstall from Mt Pleasant, SC
    Replied 4 months ago
    Very helpful information. Thank you
    Whitney Hutten Rental Property Investor from Boulder, CO
    Replied 4 months ago
    Glad you found value, Charlie.
    John Adams Investor from Atlanta, Georgia
    Replied 4 months ago
    Agree that Curt Smith is squarely on-target. I own 11 rentals units, no big deal, but super clean and sweet for my single-owner LLC to own the units. I also use Buildium (a cloud-based property management app) to track everything. Very clean way to run everything. My tenants pay through Buildium using draft -- only costs me $1 per rent payment. I cannot imagine running things without keeping simple and clean methods (specifically, a simple LLC and Buildium). Using a LLC presents my operation as a "real" business, which is handy for all sorts of things. The expense? Here in Georgia, an annual LLC fee of $125 -- so for me, that's $12 per unit per year. Buildium costs me something like $5 per unit per month, and saves me countless hours of hassle. Cannot believe anyone actually runs their rentals using Excel. But hey, each to their own :-)
    Whitney Hutten Rental Property Investor from Boulder, CO
    Replied 4 months ago
    For those investors who have scale, absolutely use LLCs. As far as software, I use Stessa... everything pulls into there including PM statements and banking.
    Steve Carroll Investor from Anaheim, CA
    Replied 4 months ago
    What are some of the options besides LLCs for holding RE? We have used land Trusts several times, but it has its challenges. The biggest one is that very few people understand it including sellers, buyers, realtors, title companies, and lawyers, so they are afraid of it.
    Whitney Hutten Rental Property Investor from Boulder, CO
    Replied 4 months ago
    Steve, the better question is what works best for you. What works for one investor, may not work for another based on their situation. I've found using my personal name or LLC is generally quick and easy to purchase in (LLC being far less complicated).
    Ravi K.
    Replied 4 months ago
    Hi Whitney, My situation is a little complicated. I, along with 4 other friends purchased a home in 2015 as an owner occupied home (I lived there for 2 years) with all 5 off us on the mortgage & title. After I moved out, we have been renting out for past 3 years. We plan on holding this home for a longer term & wanted to transfer the home under LLC. However, like you mentioned above, it violates our lender agreement & bank won’t allow us. Could you please suggest any lenders that will allow us to refinance & transfer title to LLC? That way, we can make the future lease agreements under the LLC & thereby protect our personal assets.
    Aaron Steinfeld Rental Property Investor from Cleveland, OH
    Replied 3 months ago
    Great article! Thanks for taking the time to write it. I am newbie and using a HML to fund my first deal. It needs to be in LLC to get the funding, does that mean I will be paying higher rates when I cash out Refi as I will need a commercial loan?
    JJ P. Real Estate Agent from San DIego
    Replied 3 months ago
    I just ordered the book.
    Jessica Davies
    Replied 3 months ago
    Whitney! This was one of he most informative articles I have read. Lost of great information not just empty boasting or marketing yourself like most people do on this site. THANK YOU!
    Scott Assink
    Replied 3 months ago
    A lot of good information Whitney. I have a house (was my primary) in Michigan that I tried selling but I had issues so I'm turning it into a short-term rental. I was looking at putting this in an LLC, but I'm not sure how I would handle the mortgage. Can I keep this in my name or does it need to be part of the LLC?