I'm soon to be a landlord for the second time. The first was terrifying as I was leaving the state and trusting my home to a "professional" Property Manager. This time I will be doing it myself.
I'm wondering if anyone has created an LLC for themselves for receiving rental income. Do you recommend it? Is there any reason not to? Is it easy? How did you set it up? Does it protect you? Any experience advice is greatly appreciated!
Long term, I expect to have many units and I'd like for checks to NOT be written directly to me and I want to keep rental income totally separate from my 9-5 income. I will be creating a separate bank account to have mortgages withdrawn from and rental income deposited to. What else should I be considering?
Thanks in advance!
@Jo Ballagh Welcome to BP. I just started a property management company in South Florida (probably 4,000 miles away from you,) and had to follow strict laws. I set it up and got E&O insurance.. Those two will protect me, which I can help more but have no idea about Alaska.
Set it up as an LLC if you can. Using FHA to get into a fourplex can make that tricky however, as the FHA doesn't want you to purchase properties to crate a real estate "portfolio." I know this has not stopped other people though.
Setting up an LLC is beneficial for various reasons. It protects others from coming after your personal assets if something happens to your property and vice versa. Also, tax benefits that a corporation gets are amazing. A big reason to set it up as an LLC is if you ever get into commercial properties, you have some sort of track record to help you get traditional bank lending (portfolio or profile loans).
It is easy to set up yourself, however I always recommend using a CPA for their expertise.
James Cash, Real Estate Agent in AK (#18690)
@Jo Ballagh I started a property management company and formed an S-Corp for the company. I sat down with a lawyer, and also did quite a bit of research on the topic of forming an LLC verses an S-Corp. If I were you I would research and ask the help of a lawyer that is willing to answer some questions on this topic for free. The lawyer that I have met with has answered many questions as we went out to lunch.
Also, check in with a CPA about the tax implications of both. An LLC can have a lot of protection, but has some different tax implications from what an S-Corp has. They carry the same protect, but are just looked at a little different from the IRS standpoint.
Good luck and I give this information to you just as advise I have gotten from other professionals and research I have done. (I am not a lawyer or CPA.)
I'd set up an LLC and in fact, a different LLC for each property. That way each property is protected from potential issues (lawsuits or whatever) that might arise at the other property. Also, by holding the assets in an LLC, you are personally protected as well so its a good idea to keep rental income separate from your 9-5. Just keep records, accounts and activities separate from each other as well as from your personal stuff. LLC's are easy to set up and easy to maintain, they are very flexible and affordable. For the first time you may consult a lawyer or accountant to help. I've used a paid service the first time to see how it works and since have created several on my own in just a few minutes online. Although different states have different rules.
@Jo Ballagh I have LLCs for each of my 2 properties to collect rent and pay operating expenses. And then a 3rd umbrella LLC which owns the 2 other LLCs. I recommend it as Kevin suggested for protection of your personal assets.
@Kevin McGinness Do you also have separate accounts in each LLC for security deposits? Or just one central account that holds only security deposits but for multiple properties?
@Ray Shum I haven't jumped into rental as a personal investment yet but I see it on another scale at work so I might not have the best answer for your situation. But my quick response is if you think its important enough to have 2 LLC's to protect your assets, then why commingle anything between the two. I might be a little more conservative than others where I too would have 2 LLC's for 2 properties while someone else might have 5 single family homes in 1 LLC. But atleast consider each LLC separate from the others (and yourself) in every way possible.
Great information, guys! I like the idea of an umbrella LLC and a separate for each property for liability protection. This was sort of what I was thinking so it's good to hear that for some, this isn't a waste. I've had people tell me it's too much to manage but this sue happy society we are in makes me want to set up all the barriers I can!
Join the Largest Real Estate Investing Community
Basic membership is free, forever.