If you own rental property, you’ve probably asked yourself: Should I set up an LLC for my real estate? It’s one of the first big questions new landlords face—and for good reason.
Owning real estate in your name might seem simple, but it can also leave you exposed. An LLC—short for limited liability company—adds a powerful layer of protection and flexibility. But setting up an LLC for landlords the right way takes more than just filing a form online.
In this guide, I’ll explain what an LLC really is, why it matters for landlords, and the five steps to set one up correctly. Along the way, I’ll answer the most common questions I hear from investors like you.
Before we dive in, you can also watch my full video on LLCs for rental properties here.
What Exactly Is an LLC for Rental Properties?
Think of an LLC as a protective container for your rental business. It’s not a corporation—it’s a separate legal business entity you form under state law.
Here’s where a lot of people get confused: the IRS doesn’t have a tax category called “LLC.” Instead, your LLC is taxed based on how you set it up:
A single-member LLC is usually “disregarded,” which means the IRS ignores it and you just report the rental income on your personal return.
A multi-member LLC is treated as a partnership by default, unless you elect to be taxed as a corporation.
That flexibility is a big win for landlords. You can adjust how your LLC is taxed to fit your situation, whether you own one property or you’re growing multiple properties into a portfolio.
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LLC vs. Sole Proprietorship: What’s the Difference?
Many new landlords start by owning rentals in their own name as sole proprietorships. It feels easy—you collect rent, deduct expenses, and report everything on your personal tax return.
But here’s the problem: sole proprietorships offer no liability protection. If a tenant sues, they’re suing you—your home, wages, and retirement accounts are all at risk.
Creating an LLC changes that. An LLC separates your personal life from your real estate investments. The LLC limits your liability to only the assets inside that entity if something goes wrong.
Pros and Cons of Creating an LLC for Real Estate:
✅ Pros:
Asset protection against tenant lawsuits
Pass-through taxation flexibility
Professional credibility with lenders and partners
Easier estate planning and transfer to heirs
❌ Cons:
Costs: filing fees, annual reports, and sometimes franchise taxes
More bookkeeping and compliance requirements
Possible lender concerns about due-on-sale clauses
At the end of the day, the pros outweigh the cons for most landlords. The risks of staying a sole proprietor are just too high.
Why Would a Landlord Want an LLC?
Let’s be honest—landlords get sued more than almost anyone else. A tenant slips and falls, mold is alleged, or a repair dispute spirals out of control. Without an LLC, that lawsuit goes straight after you.
An LLC changes the game.
Inside Liability Protection
If a lawsuit arises inside the property—like a tenant slip, fall, or mold claim—the damages are limited to that LLC. Your other properties and personal assets stay off the table.
In a market with high interest rates, every dollar of rental income matters even more. Losing one property—or worse, your personal assets—could derail your entire investment plan. The whole point of inside liability protection is to isolate risk, so one bad incident doesn’t jeopardize everything else you’ve built.
Want to learn how to keep your name off public records and reduce your risk of being targeted? Download our free Invisible Investor eBook and discover how to build your real estate portfolio with true anonymity.
Hybrid Tax Treatment
An LLC allows you to choose how it’s taxed—disregarded, partnership, or corporation—depending on your goals. That flexibility creates powerful tax advantages.
Outside Liability Protection
Now, let’s flip the script. What if something happens to you personally? A major car accident, unexpected medical bills, or another personal liability event could lead creditors straight to your real estate portfolio.
Forming the right LLC through a Wyoming or Nevada holding company protects your rentals from creditors, even if they sue you personally. And with higher interest rates and rising costs, the last thing you want is creditors siphoning off your rental income and destroying your cash flow.
Perpetual Existence
LLCs don’t “die.” They continue on even after you pass away, making them an excellent estate planning tool. Paired with a living trust, your heirs can take over without expensive and time-consuming probate in multiple states.
Should You Put Each Property in Its Own LLC?
This is one of the most common questions I get: Do I need a separate LLC for each rental?
The answer is: it depends.
If you’re starting with just a handful of properties (say, fewer than 10), I often recommend one LLC per property. If one property has a problem, the LLC prevents it from harming the others.
If you’ve built a portfolio of hundreds of doors, you may group them—maybe four or five in each LLC—because losing one property isn’t devastating at that scale.
The key is isolation. You don’t want one tenant’s lawsuit threatening your entire real estate empire.
How Does Pass-Through Taxation Work for LLCs?
One of the best features of an LLC is pass-through taxation. Unlike a C-Corporation, which pays its own corporate taxes, most LLCs don’t pay taxes at the entity level. Instead, profits and losses “pass through” to the owners.
For landlords, this means:
Rental income is reported directly on your personal return (Schedule E for most single-member LLCs).
You deduct property management fees, property taxes, mortgage interest, repairs, and depreciation against your rental income.
If your business is structured right, you may also qualify for additional tax advantages like the 20% Qualified Business Income (QBI) deduction.
Pass-through taxation keeps things simple while still giving you the tax benefits of operating as a business.
How Do You Actually Set Up an LLC for a Rental Property?
Here’s the step-by-step process:
Choose a Name and StateFile formation documents (articles or certificate) with your state’s Secretary of State. Most of the time, you form the LLC in the state where the property is located. Expect to pay a filing fee that ranges from $50 to $500, depending on the state.
Get an EIN from the IRSThis is your LLC’s tax ID, also known as an Employer Identification Number. At this point, you also decide how it will be taxed—disregarded, partnership, or corporation.
Draft a Real Operating AgreementThis is where most landlords mess up. A boilerplate template from the internet can undo your protections. A well-drafted agreement defines who owns what, who manages what, and how decisions get made.
Comply with the Corporate Transparency ActStarting in 2024, most LLCs must file a Beneficial Ownership Report with FinCEN within 30–90 days. Skip it, and you could face penalties of up to $500 per day.
Open a Separate Bank AccountKeeping your rental finances separate proves to courts that your LLC is real. It also makes bookkeeping and taxes much cleaner.
What Ongoing Costs Should Landlords Expect?
Another common question: After I create an LLC, what does it cost to maintain?
Every state is different, but most require:
Annual Report — A filing that updates your state about your LLC’s status. Fees range from $20 to several hundred dollars.
Franchise Tax — Some states, like California, charge an $800 minimum annual franchise tax, even if your rental property isn’t making money.
Registered Agent Fees — If you use a service for privacy, expect to pay $100–$300 per year.
Property Taxes & Property Management — Not LLC-specific, but managing real estate inside an LLC still means budgeting for taxes, insurance, and property management.
These costs are small compared to the asset protection and tax advantages an LLC provides. Think of them as the price of doing business safely.
What About Mortgages and Due-on-Sale Clauses?
Another landlord worry: If I transfer my rental into an LLC, will the bank call my loan due?
Technically, yes—they could. In reality, it almost never happens. And you can add another layer of protection by using a land trust.
Here’s how it works:
Title the property in a land trust.
Assign the beneficial interest to your LLC.
This keeps your name out of public records, avoids transfer taxes in some states, and makes your portfolio less of a target for opportunistic attorneys.
Example: One of our clients in Florida avoided thousands in doc stamp fees by transferring property into a land trust rather than directly into an LLC. It’s a smart move in high-fee states.
Can an LLC Really Keep Me Anonymous?
Absolutely—if you structure it right. In states like Wyoming and Nevada, you don’t have to list owners or managers on public records. By using a Wyoming LLC as the manager of your local LLC, your name stays off the paperwork.
This matters more than you might think. Attorneys target landlords who look wealthy. If they can’t tie properties directly to your name, you’re less likely to end up in their crosshairs.
Final Thoughts: Protecting Your Rentals and Your Future
Starting an LLC for rental property isn’t just about checking boxes. It’s about protecting your assets, lowering your risks, and giving your family a smoother path forward.
Yes, there are pros and cons. Yes, there are costs like franchise taxes, filing fees, and annual reports. But compared to the risk of losing everything in one lawsuit, the protection of an LLC is worth it.
And remember, every landlord’s situation is unique. The right setup for one investor could be the wrong choice for another—especially in today’s market with high interest rates and shifting real estate values.
That’s why I always recommend sitting down with a professional before you file.📞 Or better yet, schedule a free 45-minute Strategy Session with a Senior Advisor at Anderson Advisors. We’ll build you a custom plan to structure your LLCs, reduce your taxes, and keep your portfolio safe from unnecessary risk.
