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:

  • Before your first purchase: It’s easier to form an LLC for your rental property before you purchase it; otherwise, you’ll have to transfer your property to your LLC after the fact.
  • If you own multiple rentals: Overseeing a portfolio of rentals can be tough and managing them under a single LLC makes it easier for recordkeeping.
  • With co-owners or co-investors: If you are co-owning or investing, make sure that you have a clear business framework for ownership, operations management and profit distribution.
  • Properties with increased liability risk: While you should always consider limiting your liability with an LLC, if you have a property with a pool or similar amenities, consider protecting yourself with an LLC.

Last Update: June 13, 2024

Tagged in:

, , ,