LLC Landlord: Everything You Need to Know
An LLC landlord can take advantage of the liability protection and advantageous taxation of a limited liability company.3 min read
An LLC landlord can take advantage of the liability protection and advantageous taxation of a limited liability company. An LLC can have one or more owners, known as members. The process for creating an LLC varies depending on your state of establishment. An LLC can be especially beneficial when a property has multiple owners, since you can create a legally binding operating agreement that details each's member rights, responsibilities, and ownership percentage, as well as business procedures for the LLC.
When Should a Landlord Create an LLC?
If you're thinking about investing in a rental property, you may be unsure whether you should form your LLC before or after buying the property. If you decide to buy the property first, you can later transfer its ownership to the LLC. However, this requires:
- Notifying the bank that holds your mortgage of the need for a title transfer
- In some cases, ending your loan with that bank and creating a new loan, which may carry a higher interest rate and other costs
- Notifying the tenants that the property is now owned by an LLC rather than by an individual
- Paying additional fees such as a title transfer tax
Avoid these headaches by first forming your LLC and then purchasing rental property in the name of the LLC.
What Are the Steps to Create an LLC?
- If you already have a property that you want to transfer to a new LLC, find out whether this is allowed by your lender and the terms and fees of a title transfer.
- Choose a name for your LLC that isn't already used by another business in your state.
- File articles of organization with the office of the Secretary of State in your state.
- Create an LLC operating agreement.
- If required by your state of establishment, publish a notice of intent to form the LLC in newspapers as designated by the county clerk's office.
- Obtain required business permits and licenses, which vary by state, municipality, and industry.
- Pay the state filing fee.
- If necessary, transfer title of your property to the LLC.
- Set up a separate bank account for the LLC and keep personal funds completely separate.
- Update rental leases to the name of the LLC and ensure that rental income and other funds are deposited in the LLC account, not in your personal account.
What Are the LLC Naming Requirements?
An LLC for a rental property landlord can have any name as long as it is not registered already by another business in that state. Many landlords name the LLC after the property address. This provides your tenants easy recognition and it is a unique name that will be easy to register. If you prefer another name, check if it's available before registering by searching the database maintained by the Secretary of State.
How Can an LLC Shield Your Assets?
Establishing an LLC protects your personal assets from business debts or liabilities such as a lawsuit settlement. If someone gets hurt in your rental property, they can sue you for damages. If you do not have an LLC and you lose this lawsuit, your personal assets such as bank accounts and property could be seized to pay the settlement. If you have an LLC, only the business can be sued, not you personally.
You can also use an LLC to keep multiple properties legally separate from one another. This means that a lawsuit of the kind described above would only affect the rental property in question, not other rental properties you may own. For this reason, it makes sense to set up a separate LLC for each property.
How Much Does it Cost to Establish an LLC?
The fees to create an LLC vary by state, typically between $50 and $200 for the filing fee plus the cost of associated requirements such as publication of intent in the local newspaper. While you can hire an attorney or service to complete your LLC paperwork, you can also submit these forms independently. The average total cost is typically between $400 and $800.
If you need help with establishing an LLC for a rental property you own, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.