is an LLC necessary?
Brandon MorganPro Member
Member since 2023 · 124 posts · 132 votesis an LLC necessary?
Most Popular Reply
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
1yAn LLC is useful for two things: anonymity and legal protection. In most cases, neither is warranted.
Warning: I am not an attorney, and this can be a complicated topic. Please note the information provided below is a layman's definition designed to provide a basic understanding for the general audience. You should consult an attorney or CPA for your specific situation.
ANONYMITY: When you create the LLC, your name is recorded on the documents and published on the Secretary of State's website for all to see. So you're not completely anonymous. If you want to be completely anonymous, you can use a Registered Agent. The Registered Agent will record the documents on your behalf so only their name and information appear on the documents. I've done this with my properties because I'm well known in my small town and don't want people to know what I own.
LEGAL PROTECTION: By placing your assets in an LLC, you are legally separating them from your personal assets. If someone injures themselves and sues, they will be suing the LLC and not you personally. If your insurance coverage isn't enough, they could seize the LLC assets, but not your personal assets.
Additional thoughts:
1. An LLC is not free. You can spend as little as $100 to form an LLC, or you could use an attorney and spend $1,000 or more. There are also additional costs of operating and maintaining an LLC, like separate bank accounts, annual report filings, tax filings, etc.
2. There are rules to follow! If you fail to follow the rules, you may open your personal assets to a lawsuit. An example of this would be mixing your personal money and LLC money in the same bank account.
3. You do not need a separate LLC for each property or a series LLC! Don't make your life more complicated than it has to be. Most professionals will recommend a separate LLC for every $1 million in assets but I don't think that's necessary. In my case, I have residential rentals in one LLC, commercial properties in another, self storage in a third, and my real estate company operates in a fourth. Some have more than $1 million in equity while others have less.
4. The need for an LLC is grossly exaggerated on BiggerPockets and other websites. Have you ever heard of a Landlord being sued by a Tenant and losing property? I've been on this board since 2010 and haven't found an example yet. You've probably heard of big Landlords losing property, but only because they were flagrantly violating Fair Housing, running a slum, or otherwise violating the law in an egregious manner. You are more likely to be struck by lightning twice. The vast majority of lawsuits against Landlords are for wrongful eviction, security deposit disputes, and Fair Housing Violations. Your primary insurance policy with $300,000 in liability coverage should be sufficient in 99.999% of all lawsuits.
5. The best protection for you and your investments? Know and obey the law. I manage around 400 rentals with 14 years of experience and have never been sued once. Even if I were sued, I document everything and obey the law, so I won't be found guilty. Even if I were found guilty, the cost would be in the thousands, not in the millions. Insurance would cover it, I would pay the deductible, and no assets would be lost.
If you are in an area like San Diego where people are more likely to sue, a judge is more likely to find you guilty, and the payout is expected to be higher, you may consider an umbrella insurance policy. This policy will provide additional coverage above what your existing policy covers. It's easy to obtain, costs very little, and doesn't require extra, on-going effort to maintain.
The DIY Landlord Book4.7247 Reviews
64 Replies
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes1y
@Brandon Morgan
If the loan is in your name I would not put it in LLC I would just a good insurance policy.
That’s what I would do and have done
7e investments53 Reviews - Member since 2023 · 124 posts · 132 votes1y
Quote from @Chris Seveney:
@Brandon Morgan
If the loan is in your name I would not put it in LLC I would just a good insurance policy.
That’s what I would do and have done
so you're saying don't switch it over to an LLC later on? and when you say insurance do you mean insurance other than home insurance like State farm?
- Member since 2024 · 225 posts · 86 votes1y
The primary reason for forming an LLC for your portfolio is to protect yourself from liability in case of lawsuits. For this protection to be effective, it's crucial to keep your finances entirely separate from the LLC's finances. Any mixing of personal and LLC funds can compromise this liability protection, potentially making you personally liable for any claims or lawsuits.
- Accountant · Bryn Mawr, PA · Member since 2023 · 409 posts · 321 votes1y
As always it depends....
It sounds like you are just starting out, keep it simple over some elaborate entity scheme.
As everybody else stated review your basic protection with P&C and umbrella coverage and run your rentals like a business, easier said than done.
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes1y
An LLC is useful for two things: anonymity and legal protection. In most cases, neither is warranted.
Warning: I am not an attorney, and this can be a complicated topic. Please note the information provided below is a layman's definition designed to provide a basic understanding for the general audience. You should consult an attorney or CPA for your specific situation.
ANONYMITY: When you create the LLC, your name is recorded on the documents and published on the Secretary of State's website for all to see. So you're not completely anonymous. If you want to be completely anonymous, you can use a Registered Agent. The Registered Agent will record the documents on your behalf so only their name and information appear on the documents. I've done this with my properties because I'm well known in my small town and don't want people to know what I own.
LEGAL PROTECTION: By placing your assets in an LLC, you are legally separating them from your personal assets. If someone injures themselves and sues, they will be suing the LLC and not you personally. If your insurance coverage isn't enough, they could seize the LLC assets, but not your personal assets.
Additional thoughts:
1. An LLC is not free. You can spend as little as $100 to form an LLC, or you could use an attorney and spend $1,000 or more. There are also additional costs of operating and maintaining an LLC, like separate bank accounts, annual report filings, tax filings, etc.
2. There are rules to follow! If you fail to follow the rules, you may open your personal assets to a lawsuit. An example of this would be mixing your personal money and LLC money in the same bank account.
3. You do not need a separate LLC for each property or a series LLC! Don't make your life more complicated than it has to be. Most professionals will recommend a separate LLC for every $1 million in assets but I don't think that's necessary. In my case, I have residential rentals in one LLC, commercial properties in another, self storage in a third, and my real estate company operates in a fourth. Some have more than $1 million in equity while others have less.
4. The need for an LLC is grossly exaggerated on BiggerPockets and other websites. Have you ever heard of a Landlord being sued by a Tenant and losing property? I've been on this board since 2010 and haven't found an example yet. You've probably heard of big Landlords losing property, but only because they were flagrantly violating Fair Housing, running a slum, or otherwise violating the law in an egregious manner. You are more likely to be struck by lightning twice. The vast majority of lawsuits against Landlords are for wrongful eviction, security deposit disputes, and Fair Housing Violations. Your primary insurance policy with $300,000 in liability coverage should be sufficient in 99.999% of all lawsuits.
5. The best protection for you and your investments? Know and obey the law. I manage around 400 rentals with 14 years of experience and have never been sued once. Even if I were sued, I document everything and obey the law, so I won't be found guilty. Even if I were found guilty, the cost would be in the thousands, not in the millions. Insurance would cover it, I would pay the deductible, and no assets would be lost.
If you are in an area like San Diego where people are more likely to sue, a judge is more likely to find you guilty, and the payout is expected to be higher, you may consider an umbrella insurance policy. This policy will provide additional coverage above what your existing policy covers. It's easy to obtain, costs very little, and doesn't require extra, on-going effort to maintain.The DIY Landlord Book4.7247 Reviews- Real Estate Agent · Washington, DC · Member since 2025 · 157 posts · 77 votes1y
Quote from @Nathan Gesner:
An LLC is useful for two things: anonymity and legal protection. In most cases, neither is warranted.
Warning: I am not an attorney, and this can be a complicated topic. Please note the information provided below is a layman's definition designed to provide a basic understanding for the general audience. You should consult an attorney or CPA for your specific situation.
ANONYMITY: When you create the LLC, your name is recorded on the documents and published on the Secretary of State's website for all to see. So you're not completely anonymous. If you want to be completely anonymous, you can use a Registered Agent. The Registered Agent will record the documents on your behalf so only their name and information appear on the documents. I've done this with my properties because I'm well known in my small town and don't want people to know what I own.
LEGAL PROTECTION: By placing your assets in an LLC, you are legally separating them from your personal assets. If someone injures themselves and sues, they will be suing the LLC and not you personally. If your insurance coverage isn't enough, they could seize the LLC assets, but not your personal assets.
Additional thoughts:
1. An LLC is not free. You can spend as little as $100 to form an LLC, or you could use an attorney and spend $1,000 or more. There are also additional costs of operating and maintaining an LLC, like separate bank accounts, annual report filings, tax filings, etc.
2. There are rules to follow! If you fail to follow the rules, you may open your personal assets to a lawsuit. An example of this would be mixing your personal money and LLC money in the same bank account.
3. You do not need a separate LLC for each property or a series LLC! Don't make your life more complicated than it has to be. Most professionals will recommend a separate LLC for every $1 million in assets but I don't think that's necessary. In my case, I have residential rentals in one LLC, commercial properties in another, self storage in a third, and my real estate company operates in a fourth. Some have more than $1 million in equity while others have less.
4. The need for an LLC is grossly exaggerated on BiggerPockets and other websites. Have you ever heard of a Landlord being sued by a Tenant and losing property? I've been on this board since 2010 and haven't found an example yet. You've probably heard of big Landlords losing property, but only because they were flagrantly violating Fair Housing, running a slum, or otherwise violating the law in an egregious manner. You are more likely to be struck by lightning twice. The vast majority of lawsuits against Landlords are for wrongful eviction, security deposit disputes, and Fair Housing Violations. Your primary insurance policy with $300,000 in liability coverage should be sufficient in 99.999% of all lawsuits.
5. The best protection for you and your investments? Know and obey the law. I manage around 400 rentals with 14 years of experience and have never been sued once. Even if I were sued, I document everything and obey the law, so I won't be found guilty. Even if I were found guilty, the cost would be in the thousands, not in the millions. Insurance would cover it, I would pay the deductible, and no assets would be lost.
If you are in an area like San Diego where people are more likely to sue, a judge is more likely to find you guilty, and the payout is expected to be higher, you may consider an umbrella insurance policy. This policy will provide additional coverage above what your existing policy covers. It's easy to obtain, costs very little, and doesn't require extra, on-going effort to maintain.Well said!
- Member since 2021 · 22 posts · 15 votes1y
Quote from @Nathan Gesner:
An LLC is useful for two things: anonymity and legal protection. In most cases, neither is warranted.
Warning: I am not an attorney, and this can be a complicated topic. Please note the information provided below is a layman's definition designed to provide a basic understanding for the general audience. You should consult an attorney or CPA for your specific situation.
ANONYMITY: When you create the LLC, your name is recorded on the documents and published on the Secretary of State's website for all to see. So you're not completely anonymous. If you want to be completely anonymous, you can use a Registered Agent. The Registered Agent will record the documents on your behalf so only their name and information appear on the documents. I've done this with my properties because I'm well known in my small town and don't want people to know what I own.
LEGAL PROTECTION: By placing your assets in an LLC, you are legally separating them from your personal assets. If someone injures themselves and sues, they will be suing the LLC and not you personally. If your insurance coverage isn't enough, they could seize the LLC assets, but not your personal assets.
Additional thoughts:
1. An LLC is not free. You can spend as little as $100 to form an LLC, or you could use an attorney and spend $1,000 or more. There are also additional costs of operating and maintaining an LLC, like separate bank accounts, annual report filings, tax filings, etc.
2. There are rules to follow! If you fail to follow the rules, you may open your personal assets to a lawsuit. An example of this would be mixing your personal money and LLC money in the same bank account.
3. You do not need a separate LLC for each property or a series LLC! Don't make your life more complicated than it has to be. Most professionals will recommend a separate LLC for every $1 million in assets but I don't think that's necessary. In my case, I have residential rentals in one LLC, commercial properties in another, self storage in a third, and my real estate company operates in a fourth. Some have more than $1 million in equity while others have less.
4. The need for an LLC is grossly exaggerated on BiggerPockets and other websites. Have you ever heard of a Landlord being sued by a Tenant and losing property? I've been on this board since 2010 and haven't found an example yet. You've probably heard of big Landlords losing property, but only because they were flagrantly violating Fair Housing, running a slum, or otherwise violating the law in an egregious manner. You are more likely to be struck by lightning twice. The vast majority of lawsuits against Landlords are for wrongful eviction, security deposit disputes, and Fair Housing Violations. Your primary insurance policy with $300,000 in liability coverage should be sufficient in 99.999% of all lawsuits.
5. The best protection for you and your investments? Know and obey the law. I manage around 400 rentals with 14 years of experience and have never been sued once. Even if I were sued, I document everything and obey the law, so I won't be found guilty. Even if I were found guilty, the cost would be in the thousands, not in the millions. Insurance would cover it, I would pay the deductible, and no assets would be lost.
If you are in an area like San Diego where people are more likely to sue, a judge is more likely to find you guilty, and the payout is expected to be higher, you may consider an umbrella insurance policy. This policy will provide additional coverage above what your existing policy covers. It's easy to obtain, costs very little, and doesn't require extra, on-going effort to maintain.Could you give some basic examples of what to keep a record of? This will be my first year renting out half of my duplex, and besides receipts, I haven't kept any records.
- 1yBill HamptonBusiness MemberAccredited Investment Fiduciary, AIF®, Financial Planner, Tax Strategist, Real Estate Investor · Atlanta, GA · Member since 2012 · 2k+ posts · 978 votes
An LLC will not reduce your taxes. However, an LLC can be used to open a business bank account. A business bank account can be used to separate your business income and expenses from personal income. This also helps with asset protection, monthly bookkeeping and annual tax return preparation.
Good luck.
Hampton Tax and Financial Services LLC4.7106 Reviews - Member since 2024 · 7 posts · 12 votes1y
Congratulations Brandon! I am still looking to buy my first investment property so I don't have enough experience to answer the LLC question. However, I was talking to a DSCR loan officer about a property I was looking at and they told me that they would only lend to an entity like a LLC or corporation; they would not lend to me individually. May I ask where you bought your first property? I am in San Diego and it is too expensive here to get started, so I am looking in the Midwest. But there are so many possible places to look, it gets overwhelming. Thanks.
- Member since 2025 · 2 posts · 0 votes1y
Quote from @Roland VanLoan:
Congratulations Brandon! I am still looking to buy my first investment property so I don't have enough experience to answer the LLC question. However, I was talking to a DSCR loan officer about a property I was looking at and they told me that they would only lend to an entity like a LLC or corporation; they would not lend to me individually. May I ask where you bought your first property? I am in San Diego and it is too expensive here to get started, so I am looking in the Midwest. But there are so many possible places to look, it gets overwhelming. Thanks.
Hi Roland, Springfield Missouri is very promising. Please research this town.
- Member since 2023 · 124 posts · 132 votes1yThis was very helpful. thank you.
Quote from @Nathan Gesner:
An LLC is useful for two things: anonymity and legal protection. In most cases, neither is warranted.
Warning: I am not an attorney, and this can be a complicated topic. Please note the information provided below is a layman's definition designed to provide a basic understanding for the general audience. You should consult an attorney or CPA for your specific situation.
ANONYMITY: When you create the LLC, your name is recorded on the documents and published on the Secretary of State's website for all to see. So you're not completely anonymous. If you want to be completely anonymous, you can use a Registered Agent. The Registered Agent will record the documents on your behalf so only their name and information appear on the documents. I've done this with my properties because I'm well known in my small town and don't want people to know what I own.
LEGAL PROTECTION: By placing your assets in an LLC, you are legally separating them from your personal assets. If someone injures themselves and sues, they will be suing the LLC and not you personally. If your insurance coverage isn't enough, they could seize the LLC assets, but not your personal assets.
Additional thoughts:
1. An LLC is not free. You can spend as little as $100 to form an LLC, or you could use an attorney and spend $1,000 or more. There are also additional costs of operating and maintaining an LLC, like separate bank accounts, annual report filings, tax filings, etc.
2. There are rules to follow! If you fail to follow the rules, you may open your personal assets to a lawsuit. An example of this would be mixing your personal money and LLC money in the same bank account.
3. You do not need a separate LLC for each property or a series LLC! Don't make your life more complicated than it has to be. Most professionals will recommend a separate LLC for every $1 million in assets but I don't think that's necessary. In my case, I have residential rentals in one LLC, commercial properties in another, self storage in a third, and my real estate company operates in a fourth. Some have more than $1 million in equity while others have less.
4. The need for an LLC is grossly exaggerated on BiggerPockets and other websites. Have you ever heard of a Landlord being sued by a Tenant and losing property? I've been on this board since 2010 and haven't found an example yet. You've probably heard of big Landlords losing property, but only because they were flagrantly violating Fair Housing, running a slum, or otherwise violating the law in an egregious manner. You are more likely to be struck by lightning twice. The vast majority of lawsuits against Landlords are for wrongful eviction, security deposit disputes, and Fair Housing Violations. Your primary insurance policy with $300,000 in liability coverage should be sufficient in 99.999% of all lawsuits.
5. The best protection for you and your investments? Know and obey the law. I manage around 400 rentals with 14 years of experience and have never been sued once. Even if I were sued, I document everything and obey the law, so I won't be found guilty. Even if I were found guilty, the cost would be in the thousands, not in the millions. Insurance would cover it, I would pay the deductible, and no assets would be lost.
If you are in an area like San Diego where people are more likely to sue, a judge is more likely to find you guilty, and the payout is expected to be higher, you may consider an umbrella insurance policy. This policy will provide additional coverage above what your existing policy covers. It's easy to obtain, costs very little, and doesn't require extra, on-going effort to maintain. - Member since 2023 · 124 posts · 132 votes1y
Quote from @Roland VanLoan:
Congratulations Brandon! I am still looking to buy my first investment property so I don't have enough experience to answer the LLC question. However, I was talking to a DSCR loan officer about a property I was looking at and they told me that they would only lend to an entity like a LLC or corporation; they would not lend to me individually. May I ask where you bought your first property? I am in San Diego and it is too expensive here to get started, so I am looking in the Midwest. But there are so many possible places to look, it gets overwhelming. Thanks.
I am on the East cost. I live in jersey but bought my property in Pennsylvania because jersey and NY are extremely expensive.
- Member since 2024 · 7 posts · 12 votes1y
Were you able to find a property that would cash flow? I am originally from PA and still have family there. Perhaps I should look there. Thanks.
- 1yRiver SavaPro MemberLender · USA · Member since 2022 · 1k+ posts · 1k+ votes
Hey Brandon - Congrats on getting your first property rented out, that’s a big step!
Setting up an LLC can be helpful for liability protection (even early on) since it separates your personal assets from the business. It's not just for large portfolios, an LLC can protect you if any issues arise with tenants or the property itself. Plus, it can make things easier when scaling your portfolio down the line. It's worth looking into now to get ahead of it, but also depends on your comfort level and goals.
- Member since 2023 · 124 posts · 132 votes1y
Quote from @Roland VanLoan:
Were you able to find a property that would cash flow? I am originally from PA and still have family there. Perhaps I should look there. Thanks.
I found property in the Scranton area. found a decent duplex that cash flows.
- Lender · Clermont, FL · Member since 2020 · 168 posts · 87 votes1y
Just get a good umbrella insurance policy to start.
- Real Estate Agent · Nampa, ID · Member since 2017 · 439 posts · 361 votes1y
Congratulations on your first investment purchase! There is a lot of variability in this answer and, like all things in real estate, it simply depends. For your first investment, it may not be worth the administrative headache to have an LLC. As you buy more, that will change. I work an asset company to help me determine my risk tolerance. I have decided on a value that each LLC has before starting the next LLC and some of this depends on the location. For example, I would never have 2 properties in 2 different states in the same LLC. I recommend learning your states laws and limitations around LLC's and working with some professionals in your area to help you determine your risk tolerance
- 1yAshish AcharyaBusiness MemberCPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
@Brandon Morgan Congrats on your first rental property! Here's a breakdown on whether an LLC might be useful at this stage:
1. Liability Protection: An LLC provides legal separation between your personal and rental property assets, which can protect personal assets if a lawsuit arises. Talk to an attorney to access your risk. There is no tax savings from an LLC.
2. Financing and Complexity: An LLC can make financing more challenging and expensive since banks often offer better terms on personal loans for real estate than LLC-held properties. Starting out, it’s common for new investors to own rentals personally to access better loan terms.
You will most likely have to buy it in your personal name and move to LLC later.
This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.
INVESTOR FRIENDLY CPA®5241 Reviews - Specialist · Long Beach, CA · Member since 2011 · 877 posts · 398 votes1y
LLC's serve a few purposes. One, they provide anonymity. And two, the help if you ever come into a lawsuit. But an LLC might not be the best for you. Maybe you need a land trust. Or perhaps a series LLC could be beneficial. Either way, you are on the right path to forming protection. We all work really hard to obtain assets, and I don't about you, but structuring your investments now can pay off in the end. I'm happy to refer you to a company that helped setup mine.
- Real Estate Broker · Cleveland, OH · Member since 2023 · 218 posts · 83 votes1y
Brandon, kudos on kicking things off! Never underestimate the importance of drawing a clear line between business and personal life.
The real investor-agent.
- Real Estate Broker · New York, NY · Member since 2020 · 2k+ posts · 1k+ votes1y
Hi @Brandon Morgan,
Congrats on getting your first property rented out! Huge milestone. An LLC isn't necessary when starting, in the long term, it may be worth exploring. Explore insurance options as well!
- Lender · New York, NY · Member since 2022 · 1k+ posts · 1k+ votes1y
No - but I'd say about 90% of my borrowers/investors utilize an LLC for what it's worth.
- Member since 2024 · 2 posts · 2 votes1y
Hi I am new at it too. My lawyer told me that it is better do that your own home is protected if you have a problem regarding your rental property
- Houston, TX · Member since 2024 · 5 posts · 3 votes1yHi Roland! Just saw your reply and I wanted to know if the loan officer gave any more context. Would they lend to an LLC even if this was the LLC’s first purchase? Just curious, I am still looking to buy my first property as well. TIA!
Quote from @Roland VanLoan:
Congratulations Brandon! I am still looking to buy my first investment property so I don't have enough experience to answer the LLC question. However, I was talking to a DSCR loan officer about a property I was looking at and they told me that they would only lend to an entity like a LLC or corporation; they would not lend to me individually. May I ask where you bought your first property? I am in San Diego and it is too expensive here to get started, so I am looking in the Midwest. But there are so many possible places to look, it gets overwhelming. Thanks.
- Member since 2024 · 7 posts · 12 votes1y
Hi Charlie,
Yes, if I understand correctly, they would only lend to an LLC - not an individual - even if this is the LLC's first purchase. However, the loan would also be backed by a personal guaranty. Keep in mind that this was for a DSCR loan, not conventional financing.
- Member since 2024 · 2 posts · 2 votes1y
Quote from @Charlie Martin:
Hi Roland! Just saw your reply and I wanted to know if the loan officer gave any more context. Would they lend to an LLC even if this was the LLC’s first purchase? Just curious, I am still looking to buy my first property as well. TIA!Quote from @Roland VanLoan:
Congratulations Brandon! I am still looking to buy my first investment property so I don't have enough experience to answer the LLC question. However, I was talking to a DSCR loan officer about a property I was looking at and they told me that they would only lend to an entity like a LLC or corporation; they would not lend to me individually. May I ask where you bought your first property? I am in San Diego and it is too expensive here to get started, so I am looking in the Midwest. But there are so many possible places to look, it gets overwhelming. Thanks.
- New to Real Estate · Member since 2024 · 16 posts · 16 votes1y
Quote from @Zach Edelman:
No - but I'd say about 90% of my borrowers/investors utilize an LLC for what it's worth.
Hi Zach - curious what are the limitations with lending utilizing LLC vs my personal name?
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