Reasons to Use an LLC for Rental Property

Innovation in the real estate industry has revolutionized rental property ownership and management. Various business structures have been designed for rental property. LLC is one such business structure.

LLC stands for Limited Liability Company. The process of establishing an LLC differs by the state since they are state-regulated. There are various reasons for creating an LLC for your rental property, as outlined below.

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#1 Tax Advantage

LLCs are designated as pass-through entities in taxation. LLC is a benefit of individual-owned businesses. All capital gains and income attained by your LLC will flow through to your individual income tax return.

This is beneficial because a corporation is usually taxed directly, and owners taxed again. This means that you get to reduce the amount of money deducted from your income for taxes.

#2 Protection from liabilities

This is one of the main incentives for setting up an LLC for your rental property. LLCs, cushion you from liability claims. Any claim that may arise will be made against the LLC and not against you as an individual.

Your rental property under the LLC will be the only asset at risk and not your assets.

#3 Anonymity

Creating an LLC for your rental property means the property will be under its business name. That is the name that will be on the deed; hence, this will not disclose the owners’ names. This makes it more difficult for people to know who the property owners are.

If you hire a property manager for your property registered under an LLC, the tenants generally never figure out who owns the property.

#4 Easy Marketing Strategy

If you own more than one rental property, an LLC makes it easier to market those properties under one brand name. With branding, it is easier for people to remember a company name than your name.

A brand name also shows an aspect of professionalism. Branding makes it easier to attract potential investors.

Learn –> How to Invest in Real Estate, Make More Money and Retire Early

#5 Readily Separate Personal and Business Expenses

When you set up an LLC, it is advisable to create a different bank account for your LLC. Doing this separates your personal and business expenses.

This will make it simple to claim business expenses when doing your taxes. Independent bank statements make it clear which expenses are personal and which are business.

#6 Possibility of Keeping Rental Properties Separate from each Other

It is possible to put each property under its LLC. This makes money management almost easy. Each LLC having its bank account prevents co-mingling of funds between properties.

Doing this means you will have different bank statements for each property, and therefore you do not have to mark the receipts to know which property they refer to. This makes the management of the properties easier.

Creating different LLCs for the properties could also protect each property from possible liability claims generated at another property.

#7 Flexibility

The structure of an LLC is pretty flexible. You have flexibility with your Company’s management. All members can contribute to decision making, or you can have designated managers make decisions for you.

Real estate LLCs make it feasible for foreign investment and ownership options that are not accessible by corporations.

Ownership can also include one or multiple members, depending on your situation. This provides the benefits of both partnership and sole proprietorship.

Learn –> How to Invest in Real Estate, Make More Money and Retire Early

#8 Easy to Set Up

It is easier to file for an LLC compared to S-Corporation and C-Corporation. LLC requires less paperwork than these business structures. It does not need many of the formal processes needed by other types of corporations.

#9 Fewer Annual Administrative Requirements

When you register an LLC, you are not charged with presenting minutes from board meetings or recording shareholder meetings as part of the renewal process or authorization.

It would be best if you had your articles of incorporation to follow local regulations to enable you to declare who is given voting rights and who is not within your structure.

#10 Selling Company Shares

LLCs function as business entities. Provided it is properly registered, you can sell shares or “interests” of the Company- in the case of LLCs, to willing investors who wish to invest with you.

You can also sell the LLC as an entity that owns things.

#11 Easy Transfer of Interest Rights

Members of the LLC can shift ownership interest by simply granting the interest to heirs. A new deed does not need to be documented in this scenario, and no amendments require to be filed. This makes it favorable to own a rental property through an LLC.

#12 Owners are allowed to Give Assets to the Company

Owners are allowed to give assets to the LLC. You are permitted to contribute capital to the Company. You can also give loans to the LLC from your account.

There are several ways that members can invest money in the business then take it out as a repayment for the loan.

Overall, creating an LLC for rental property can be beneficial to any landlord. The advantages outweigh the disadvantages. With this in mind, it is good to go through this article and get started on creating an LLC for your rental property.

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