Should I create an LLC for my rental properties?
A question we commonly get asked not only from people who are starting their rental property investment portfolio but also from people who have been operating rental properties for years is whether or not they should create an LLC (limited liability company).
As the name suggests, an LLC helps limit liability. The follow-up question is then, why would I need to do that?
In the event with the rental properties and the owner finds themselves in a lawsuit, there are liability benefits of having the rental properties owned separately from one’s personal name. For example, in the event the tenant is awarded a judgment in the lawsuit, that judgment would be collectible against the company rather than the owner’s personal assets. This can limit the financial impact of the judgment on oneself and their family.
Owning property in a name other than one’s personal name not only has liability benefits, it also has privacy benefits. The ownership name for real property is reflected in the public record. When the real property is transferred into the entity, the entitity's name will then be reflected in the public record, rather than the individual name.
In the event with the rental properties and the owner finds themselves in a lawsuit, there are liability benefits of having the rental properties owned separately from one’s personal name. For example, in the event the tenant is awarded a judgment in the lawsuit, that judgment would be collectible against the company rather than the owner’s personal assets. This can limit the financial impact of the judgment on oneself and their family.
After we have addressed these topics with clients, we then go on to address the questions they should have asked but did not. The main question clients do not ask, but should, is, “Are there any additional implications of owning my property in an LLC?” One of the bigger implications for property owners to consider is if the property is owned by an LLC, then they must be represented by an attorney in court. For many, this means that they will need to hire an attorney to evict non-paying tenants.
Give our attorneys a call today to discuss your specific business needs. This article does not constitute legal advice.
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