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Creating a Landlord LLC

Patrick H. Page - Monday, March 6, 2023

If you’re a landlord with one or multiple income properties, you may have wondered if setting up a landlord LLC is worth it. A landlord LLC (Limited Liability Company) is a designation that helps limit your personal liability, hence its name.

You have the option of setting up an LLC by yourself or with multiple people. Unlike corporations, LLCs pay taxes similarly to sole proprietors, meaning they pay their own employment taxes.

Even though an LLC can limit your liability, does it offer any tax benefits, and is it the right choice for you? Here we review the potential benefits and considerations when forming a landlord LLC.

Potential Benefits of an LLC for Landlords

There are a few key benefits of forming an LLC as a landlord.

First, it helps protect your personal property and assets in the event that your LLC gets sued. However, it won’t eliminate risk, and you are still liable as an individual, even if your LLC is the target of the lawsuit.

Second, you can protect your assets without paying corporate taxes. Your taxes would essentially stay the same as if you did not have an LLC. Remember laws can vary by state, so check with a tax professional to be sure.

Thirdly, an LLC can help landlords stay more organized, as they will need a separate bank account for the LLC, which can make it easier for property owners to keep their personal and rental incomes separate.

How to Reduce Your Liability With a Landlord LLC

If you’re interested in reducing your personal liability with a landlord LLC, there are a few things to know:

- If you have multiple rental properties, you can choose to put them all under one LLC or make a separate LLC for each. Generally, the latter option is only necessary for large or high-value properties.
- You must have a separate bank account for your LLC. You should never mix your personal and business accounts, or accounts between LLCs, so be sure to keep them completely separate.
- Hire a tax professional to assist you. Although it’s unlikely an LLC would save you money on your taxes, a professional can help you take advantage of any applicable tax breaks in your particular situation.
- Be sure to have a separate insurance policy for your landlord LLC to further reduce liability.

We always recommend speaking with an experienced attorney when setting up your LLC to reduce your liability as much as possible.

Setting Up Your LLC

Setting up an LLC costs an initial filing fee and annual fees that vary by state. For example, in Virginia, the cost to start an LLC is $100, and the yearly registration fee is $50.

Once you have established your LLC, you can use the information from your registration to set up your separate bank account. You should also transfer the ownership of your income property into your LLC and be sure to use the LLC name on your leases.

While you can transfer ownership of the property, keep in mind that you may not be able to transfer a mortgage to your LLC. You will need to check with your specific lender to see if this is possible.

Is a Landlord LLC Right for You?

If you want to reduce your liability as a landlord, a landlord LLC may be for you. However, forming an LLC as an investment property owner isn’t always the right choice. Working with the right professionals can help you maximize the profitability of your income properties and reduce your liability. Have questions? Contact Circle Property Management at (703) 349-0144 today.

About The Author

Patrick H. Page - Principal Broker | Licensed in Virginia and the District of Columbia