Evan is a writer and entrepreneur with a background in technology and content marketing. He is currently the Head of Growth at Sagetap.io. Previous to Sagetap, he was was co-founder & CEO of the online publication Selling Signals, which was acqui.
Evan Tarver ContributorEvan is a writer and entrepreneur with a background in technology and content marketing. He is currently the Head of Growth at Sagetap.io. Previous to Sagetap, he was was co-founder & CEO of the online publication Selling Signals, which was acqui.
Written By Evan Tarver ContributorEvan is a writer and entrepreneur with a background in technology and content marketing. He is currently the Head of Growth at Sagetap.io. Previous to Sagetap, he was was co-founder & CEO of the online publication Selling Signals, which was acqui.
Evan Tarver ContributorEvan is a writer and entrepreneur with a background in technology and content marketing. He is currently the Head of Growth at Sagetap.io. Previous to Sagetap, he was was co-founder & CEO of the online publication Selling Signals, which was acqui.
Contributor Rachel Williams Small Business EditorRachel Williams has been an editor for nearly two decades. She has spent the last five years working on small business content to help entrepreneurs start and grow their businesses. She’s well-versed in the intricacies of LLC formation, business taxe.
Rachel Williams Small Business EditorRachel Williams has been an editor for nearly two decades. She has spent the last five years working on small business content to help entrepreneurs start and grow their businesses. She’s well-versed in the intricacies of LLC formation, business taxe.
Rachel Williams Small Business EditorRachel Williams has been an editor for nearly two decades. She has spent the last five years working on small business content to help entrepreneurs start and grow their businesses. She’s well-versed in the intricacies of LLC formation, business taxe.
Rachel Williams Small Business EditorRachel Williams has been an editor for nearly two decades. She has spent the last five years working on small business content to help entrepreneurs start and grow their businesses. She’s well-versed in the intricacies of LLC formation, business taxe.
| Small Business Editor
Updated: Jul 15, 2024, 11:09am
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There are many reasons to form a limited liability company (LLC) for a rental property, but there are also a few downsides. Advantages include liability protection and pass-through taxation, while disadvantages include increased costs and requirements. In this article, we discuss the ins and outs of LLCs and whether you should form one for your rental property. Let’s dive in.
An LLC is a business structure that protects its owners from the business’s liability and offers pass-through taxation and flexible management. LLCs are relatively easy to set up and are formed within a specific state. Each state has its formation requirements, but you’ll typically file articles of organization with your state, choose a registered agent and get any required business licenses.
Here are the specific properties of an LLC:
Make sure you check your specific state requirements for LLC filings and fees. Next, let’s see if you should set up an LLC for a rental property.
Anyone who owns a rental property should consider creating an LLC to limit their personal liability and protect their personal assets from the debts and obligations of their rental. For example, let’s say a tenant or visitor gets injured on the premises of a rental property you own. If you operate as a sole proprietorship without the protection of an LLC, your personal assets, such as your home, savings and investments, could be at risk in a lawsuit. However, if you have the rental property under an LLC, your personal assets are typically shielded from such liabilities. The liability protection of an LLC helps safeguard your personal finances in case of legal claims related to the rental property.
Creating an LLC will also help you separate your personal and business expenses for better recordkeeping, which can be helpful at tax time.
Specifically, this is when you should create an LLC for your rental:
The cost of forming an LLC for a rental property is generally the same process and price as forming an LLC for another business function. The overall cost will largely depend on the filing fees charged by the state and the cost of any business licenses.
Based on our analysis, filing costs range from $150 to $4,000-plus. This range includes all potential fee types, such as the cost of a registered agent, doing-business-as (DBA) fees, reporting fees and more. For a detailed breakdown of the costs of forming an LLC, check out our article on LLC costs.
There are many benefits that make an LLC structure well suited for a rental property. These benefits include:
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While LLCs have many benefits for owning and operating a rental property, they don’t come without their downsides. Here are the potential disadvantages of forming an LLC for your rental property:
Overall, however, it is still a good idea to form an LLC for your rental property because it provides limited liability protection.
An LLC protects its business owners from the debts and obligations of the business, provides pass-through taxation and offers flexible management. For these reasons, LLCs offer a lot of benefits when owning and operating a rental property. When forming an LLC for your rental, it’s important to first check with your Secretary of State to find out all the requirements and fees.
The 2% rule in real estate is a helpful framework for estimating rents based on the purchase price of a rental property. It says that the monthly rent for an investment property shouldn’t be lower than 2% of the purchase price. However, some believe this is too high and that you should use the 1% rule instead.
LLCs are the best standard business type for rental properties. However, other business structures may be better depending on your unique needs. These structures include C corporations and S corporations, which offer different tax structures.
High-tenant properties with many tenants typically are the best types of rental properties. These can include a duplex, a fourplex or an apartment building. However, commercial properties can also be included, such as office buildings or self-storage facilities.
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ContributorEvan is a writer and entrepreneur with a background in technology and content marketing. He is currently the Head of Growth at Sagetap.io. Previous to Sagetap, he was was co-founder & CEO of the online publication Selling Signals, which was acquired in 2022, and served as General Manager for the online publication Fit Small Business.
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