I definitely wouldn't say that you "need" an LLC per se, but there can be some big advantages. There are however some downsides too, so the answer is "it depends", which is a reply that you'll have to get comfortable with when asking these types of questions on here, lol... here are the pros and cons from my perspective, but speak with a savvy lawyer and your tax accountant about it to see if an LLC/multiple LLC's for each property is right for you:
Pros:
1) An LLC IF STRUCTURED CORRECTLY AND MANAGED PROPERLY, can limit your personal liability. If you're a high net worth individual with lots of properties and assets, and you own a property in your name as an individual along with all of your other properties and assets, then all of your personal assets may be at risk if somebody successfully sues you for something. By owning property through an LLC, only the assets owned by the LLC are at risk (however this isn't always the case, the "veil" can be pierced depending on what the lawsuit details are, and how clean you keep your books as far as keeping a separate business bank account, not co-mingling personal and business funds, making sure the leases are all written with the LLC not you, etc.). Talk to your lawyer about how to set up your LLC and ask whether or not it will be worth it to protect your assets, or if something like a robust umbrella insurance policy will suffice.
2) Potential tax benefits. Depending on your tax situation, an LLC may allow you to structure your business in a way that means less tax burden. You may get the benefit of having the company's income "passing through" to you as the owner, minimizing the amount of money taken out of your personal income for taxes. Talk to your tax accountant to verify this will be true and beneficial in your specific case.
3) One big benefit of an LLC that is not mentioned as often but which I have enjoyed immensely over all the others is simply separating your rental business from your personal affairs (and I don't mean in an accounting or taxation sense like mentioned already above, but rather an operational one). For example when I was first getting started I managed all of my own properties, and I was buying distressed, value-add type properties that often came occupied with problem tenants I had to remove. I would use my LLC as a way to separate myself from the company (I was also part-owner of course because I owned the LLC, but technically and on all the paperwork the LLC owned the properties). This made it possible for me to simplify and streamline lots of things: "Sorry, our company policy is that rent is due on the 1st with a 5 day grace period and a notice to quit is always issued immediately when the grace period ends, and the late fee is due. Company policy that I can not deviate from. Next time please have rent in by the first to avoid the notice being issued and having to pay the late fee." It just made it easier for me to deliver these notices and to say "No" to things and not get dragged into the weeds with people. It's not necessary, but it can be time saving and make life easier to simply defer to company policy when declining a request/ dealing with an issue. "Sorry, against company policy, please comply", is real quick and doesn't leave any room open for negotiation on non-negotiables. The times that I was most thankful to have an LLC was when I did my own evictions. When filling out the eviction paperwork (that would become part of the public record and that the person being evicted would see/ the judge would read out loud in court), I was much happier writing down the LLC name as the evictor rather than my own name, and the LLC address (a PO box), rather than my personal address where my family sleeps. Definitely less chance of them taking it personally against me or retaliating against me personally when the LLC is the one evicting them and not me personally. Keeps it business, not personal. I also like to compartmentalize and keep separate my rental business from my other businesses, the real estate brokering services that I provide to clients, and my personal life, and I find that for me both mentally and practically, the more layers of separation between these the better.
Cons:
1) An LLC may not have the liability protection that one would hope, especially if it is not set up properly, or if you are not using a dedicated business bank account, or are co-mingling personal and business funds/ not maintaining the LLC properly. I believe there are also certain cases where you can still be found personally negligent despite the property being in an LLC, so it's not a magic shield to prevent being sued in all cases.
2) Holding title in an LLC can effect available financing, interest rate, ease and ability of refinancing.
3) There are additional set up fees/paperwork/ headache, accounting and annual expenses involved to maintain an LLC. Here in CO, all we have to do is fill out a form and pay few bucks to the Secretary of State every year, but in other states the annual fees can be as high as $800 PER LLC. You will need to create your Articles of Organization and an Operating Agreement, pick an available business name and follow whatever other requirements your state has for each LLC (I believe some states require a business license/ permit, notice of intent etc. however it's very easy and inexpensive where I am here in CO).
Hope that helps and good luck!
