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Do Landlords Need To Set-Up An LLC For Their Rental Property?

A business requires a lot of work to maintain. There are paperwork and taxes to be dealt with regularly. All of these are such hassles and cost a lot of money, time, and energy. But what can a landlord do to make his life easier in managing his rental property business? That is to form an LLC.

What is an LLC? 

An LLC or a Limited Liability Company is a US-specific business structure. It is a type of business structure strategy that is easy to create and flexible in terms of its entity. A Limited Liability Company can either be registered as a corporation, a general partnership or a sole proprietorship. LLC functions also vary from state to state so there is no uniform LLC perks/advantages throughout the United States. People who own an LLC or are a part of its ownership are called “members”.

What are the 5 reasons to create an LLC?

1. Legal Protection 

In the event of a lawsuit and the case is lost, all the members' personal assets are protected. The business’ debts and obligations are to be covered by the business only. Unless if the business is found to be guilty of criminal behavior or fraud, personal asset protection is overridden. 

2. Enhanced Credibility

LLCs are a widely known formal business structure in the US. Having an LLC name in your business boosts its credibility. An LLC is also considered more formal than a sole proprietorship or partnership business structure. So it shows customers and investors that you mean real business.

3. Flexible Management Structure

There is lesser administrative paperwork in an LLC. Annual meeting and recording of meeting minutes are not required. The member/s also get to choose how the business is managed. This is very ideal for landlords who have other businesses to attend to other than his rental property alone.

4. Choice of Tax Regime 

An LLC owner can choose the business’ taxation. The most common tax regime that LLC owners choose is pass-through taxation. This way, the LLC member/s avoid double taxation by declaring the business’ operational profit and loss together with the member’s personal tax return.

5. No Residency Requirement

Creating a Limited Liability Company doesn’t require the owner to be a U.S. citizen or resident. Any landlord who is an immigrant, visitor or tourist in nature can create an LLC in the United States of America. 

When should you create an LLC?

Right from the start and if you already have your business running, you should register it as an LLC right away. The business becomes easier to establish and simpler to maintain if it is intended or planned to be created as an LLC.

Limited Liability Companies are also the most common startup business structure in the US. So it is highly recommended and safe to say that creating a rental property business as an LLC is a smart decision.

Compared to their corporate counterparts, LLCs have more freedom in general. They are easier to create and maintain. From small to medium scale, registering your real estate business as an LLC is very ideal and highly advantageous for you as a do-it-yourself landlord.

If you’re ready, make Landlord Prep your go-to resource for landlording education. Here, we offer a complete DIY landlording course to get you on the right track. Join our academy today. If you want, you can check out Flavia’s real estate investing webinar first!