LLCs for Rental Properties: A Practical Guide
You’ve bought a rental or three. Your CPA keeps saying “put them in an LLC,” your agent shrugs, and your lender says “don’t record anything without talking to us.” Meanwhile, the internet swears Wyoming is the answer to everything. This post is the calm, lawyer‑written version of the plan—what an LLC actually changes on Day One, how to move title without detonating your loan or insurance, which structures make sense at small scale, and what different states will make you file and pay every year.
Why real estate investors use LLCs
The real promise. An LLC is a simple box that keeps a property’s problems from leaking into your personal life (and your other properties) if you treat it like a real company. It also makes your paper trail cleaner: rent flows into one account, repairs and taxes go out of that account, your P&L by door is obvious, and due diligence for a refi or sale takes hours, not days.
What it doesn’t do. It’s not a magic cloak. If you personally guarantee a loan, that’s still your promise. If you pay groceries from the LLC or mix deposits with your personal funds, a court can treat the LLC as you. And if you operate in a state without registering there, you can be fined and locked out of local courts. The shield works when you respect it.
What changes on Day One. The landlord on the lease becomes the LLC. The insurance policy names the LLC. The bank account is titled to the LLC’s EIN. Vendors get W‑9s for the LLC. You sign as Manager or Member, not in your personal capacity. That alone forces healthy habits.
Ownership structures that actually work
One property per LLC
This is the clean, boring answer most lawyers give because it compartmentalizes risk. If the trip hazard is at Maple Street, only the Maple Street LLC should be at risk. It also lets you sell or refinance property‑by‑property without touching the rest of your portfolio. The tradeoff is admin: more filings, more annual reports, more bank accounts. For many owners, that’s a feature, not a bug.
One LLC for several properties
It’s cheaper and faster to run, and some portfolios start here. Just be honest about the trade: a claim tied to one unit can reach the cash and equity of the others inside the same entity. If you go this route, cluster similar, low‑risk assets together and keep higher‑risk doors (older homes, pools, STRs) separate.
Holdco with property‑level subsidiaries
A holding company owns the membership interests of several property LLCs. This adds org clarity if you have partners in some deals but not others, or if you want to sell a property by selling entity interests. For a two‑to‑five‑door portfolio, it’s often extra paperwork without extra protection, especially when lenders require personal guarantees anyway.
Series LLCs
On paper, a master LLC with internal “series” gives you silos under one umbrella. In real life, recognition is uneven across states, lenders, and title insurers. If you operate in multiple states—or ever could—plain, separate LLCs are easier to finance and insure.
Land trust + LLC
A land trust can remove your name from the public record; the LLC owns the beneficial interest. It’s a privacy move, not a liability shield. If you like privacy, great—just make sure the LLC still sits in the chain.
Moving an existing rental into an LLC without collateral damage
Here’s how a smooth transfer feels from the client seat:
- We form the LLC (or LLCs) in the state where each property sits and grab EINs. You open dedicated bank accounts.
- We talk to the lender before we touch the deed. Most residential notes have a due‑on‑sale clause. Options typically are: written consent to move title to your wholly‑owned LLC; refinance into an entity loan; or, for owner‑occupied cases only, a trust‑based path with its own rules. The right answer depends on your loan, servicer, and timing.
- We line up insurance and title coverage so the day the deed records, the policy already names the LLC and the title underwriter is happy (continuity endorsements where needed).
- We record the deed (warranty, special warranty, or quitclaim depending on the jurisdiction and history), with accurate consideration and whatever transfer‑tax affidavits the county wants.
- We flip the operations: tenants get a clean new‑owner notice with the LLC’s pay‑to details, the security deposit moves into a properly titled escrow account, vendor W‑9s update, utilities and ACHs switch over.
When you sequence it this way, there’s no overnight scramble and no “oops” with insurance or a surprised loan servicer.
Lender issues, translated
A due‑on‑sale clause is real, but not every servicer enforces it in the same way for seasoned, performing loans. What lenders do care about is surprise. If you show a thoughtful plan—consent letter, updated insurance, unchanged guarantor—they often cooperate. If they won’t and the rate environment is favorable, refinancing into an entity loan is the cleanest path. Plan the conversation before you plan the recording date.
Title insurance and the endorsements nobody talks about
After you contribute property to an LLC, you want your owner’s title policy to still have your back. Some modern policies treat a wholly‑owned LLC as a successor insured. Some don’t. The cure is simple: ask your title agent for the right endorsement (often “non‑imputation” or “additional insured”) before recording. It’s a five‑minute call that can save a future headache.
Insurance: the LLC is the insured, not you
Tell your broker you’re moving title to an LLC and ask for a landlord/lessor’s risk policy that names the entity. For condos, make sure your HO‑6 “walls‑in” limits and loss‑assessment rider match the bylaws and master policy. Then add an umbrella sized to your risk tolerance. Umbrella premiums are usually modest relative to the coverage you buy.
Taxes, in plain English
For federal purposes, a single‑member LLC disappears onto your Schedule E. A multi‑member LLC files a partnership return (1065) and issues K‑1s. Long‑term rentals are generally not subject to self‑employment tax. The 199A/QBI deduction often applies if you’re running a bona fide rental business (keep time logs and records). S‑corp elections are rarely a fit for buy‑and‑hold rentals; they’re sometimes useful for a property‑management company if you run one. If you’re contributing appreciated property to a partnership, make sure your Operating Agreement handles §704(c) so nobody gets a surprise at allocation time. If you plan a 1031 exchange, entity posture matters—don’t try to rearrange ownership the week before closing.
The Operating Agreement is the rulebook
Even if you’re the only member, put an Operating Agreement in place. It answers the questions lenders, insurers, buyers, partners, and—worst case—courts will ask: Who can sign? How are distributions made? What happens if you become disabled? What’s the buy‑sell math if a partner exits? For contributed properties, it should say exactly how depreciation and gain are allocated.
Bank discipline is your best friend
One bank account per LLC. No personal purchases from LLC accounts, and no property A expenses from property B’s account. If money must move, document it as a capital contribution or inter‑company loan. When books are clean, lending is easier, sales close faster, and audit conversations are uneventful.
Multi‑state reality check
Form where the dirt sits. If your LLC owns or regularly leases property in a state, register (foreign‑qualify) there and keep a registered agent. Delaware or Wyoming can be fine as a holding layer for privacy or governance, but you’ll still qualify in each property state and keep up with those annuals. That’s where the real work lives.
State notes investors ask me about most
Fees change. Always confirm right before you file, but these are the numbers owners plan around today.
California
- Formation: $70 Articles of Organization.
- Reporting: Statement of Information due within 90 days, then biennially ($20).
- Ongoing cost: Annual $800 franchise tax, plus a separate gross‑receipts‑based LLC fee once California income crosses thresholds.
New York
- Formation: $200 Articles.
- Special rule: Newspaper publication in two papers, then Certificate of Publication ($50). Costs vary by county.
- Reporting: Biennial statement ($9).
- Ongoing cost: IT‑204‑LL LLC fee based on NY‑source gross income (range roughly $25–$4,500).
Florida
- Formation: $125 total (Articles + RA designation).
- Reporting: Annual report $138.75 due May 1; late penalty $400.
Texas
- Formation: $300 Certificate of Formation.
- Reporting: Franchise‑tax filing with Public/Ownership Information Report due May 15.
- Ongoing cost: Most small landlords are under the no‑tax‑due threshold (about $2.47M total revenue for current cycle), but the information report still files.
Massachusetts
- Formation: $500 Certificate of Organization.
- Reporting: Annual report $500 on the anniversary month.
Illinois
- Formation: $150 Articles.
- Reporting: Annual report $75 each year (due before the anniversary month ends).
Washington
- Formation: $200 online (about $180 by mail).
- Reporting: Annual report $70.
Georgia
- Formation: $100 plus $10 service charge.
- Reporting: Annual registration $60 (due during the Jan 1–Apr 1 window each year).
Myths I hear every week
“If I use a Delaware/Wyoming LLC, I don’t need to register anywhere else.” You still register where the property sits. That’s where tenants, courts, and recorders live.
“I can record the deed now and call the bank later.” You can also invite a loan acceleration and a coverage denial. Sequence consents and endorsements first.
“It’s cheaper to keep everything under one LLC.” True—until one claim eats the equity and cash from every asset in that entity. Decide if that’s a trade you’d consciously make.
What a smooth three‑property rollout looks like
Week 1 feels administrative: we pick the structure, file formations, pull EINs, open accounts. Week 2 is coordination: lender consent/refi applications go in; insurance is re‑quoting in the LLC’s name; we schedule recordings and, for condos, order whatever dues‑clearance/estoppel the HOA wants. Week 3 is execution: deeds record, utilities and vendor ACHs flip, tenants get clean notices, deposits move to the LLC escrow. Week 4 is cleanup: city rental registrations (if any), calendars for annual reports and state fees, and final binder with your OA, banking resolutions, and recorded instruments.
What I need from you to quote this properly
Property addresses (or assessor IDs), state(s), loan and servicer details, whether you’ll seek consent or refi, and any HOA/condo info. From there, you get a one‑page scope, a fixed fee, and a realistic timeline—no surprises, and no guesswork on filing obligations.
Frequently Asked Questions
Is a single‑member LLC enough asset protection for rentals?
For most small portfolios, yes—if you keep clean formalities and adequate insurance. Courts typically respect the shield when you: (i) title the asset and lease in the LLC’s name, (ii) maintain a dedicated bank account, (iii) document capital contributions/loans, and (iv) avoid commingling. Some states give stronger charging‑order protection to multi‑member LLCs; that is a reason to add a bona fide partner in certain jurisdictions, but it is not a cure‑all. Insurance + discipline protect you more than adding a nominal member.
Will deeding my personally owned rental into an LLC trigger transfer tax or reassessment?
It can. Transfer/recording taxes are state and county specific. Many jurisdictions exempt deeds where beneficial ownership is unchanged and no consideration is paid; others treat the assumption of debt or a new mortgage as consideration. Property‑tax reassessment rules (e.g., “change in ownership/control”) are likewise state‑specific. Solution: plan the deed language and affidavits with local recorder guidance before you sign, and model any change‑in‑ownership thresholds.
How do I avoid a due‑on‑sale acceleration when moving title into an LLC?
Sequence the deal. Get written lender consent to transfer to your wholly owned LLC or refinance into an entity loan, then record. For owner‑occupied cases only, certain trust transfers may fall within a federal safe harbor—after which you can lease to the LLC. Do not rely on “they never enforce it”; some servicers do—especially after insurance or tax changes flag the file.
If I plan to do a 1031 exchange, is holding title in an LLC a problem?
A single‑member LLC (disregarded) is fine—the taxpayer is you. For multi‑member LLCs, the taxpayer is the partnership; members who want to exchange separately need advance planning (often “drop‑and‑swap” or “swap‑and‑drop,” each with step‑transaction risk). Get your structure set before you list or go under contract; last‑minute reshuffles create audit risk.
Is it smarter to sell a rental by transferring LLC interests instead of recording a deed?
Sometimes—for privacy or to avoid certain transfer taxes—but it comes with trade‑offs. The buyer won’t get a fresh owner’s title policy unless you arrange a new policy; lender consent is often required; and the buyer takes entity‑level liabilities. Some jurisdictions have anti‑avoidance rules that still impose tax on an interest transfer. Use this path only with counsel, a title underwriter on board, and explicit reps/warranties.
What happens to my owner’s title policy after I deed to an LLC?
Modern policies often treat a wholly owned LLC as a successor insured; older forms do not. Ask your title agent for appropriate endorsements (commonly Additional Insured and Non‑Imputation) before recording so coverage follows the asset and you aren’t penalized for a prior manager’s knowledge.
Do I need a separate management LLC in addition to the holding LLCs?
Not legally, but it’s often practical. A management LLC signs vendor contracts, hires contractors, and collects a stated fee from each holding LLC under a written agreement. That concentrates operational risk away from title‑holding entities and can simplify bookkeeping. Remember: management fees are active income (with ordinary tax/SE tax consequences), and workers must be properly classified.
Can my rentals qualify for the QBI (199A) deduction?
Often, yes, if the activity rises to a trade or business. The IRS safe harbor focuses on hours and record‑keeping (e.g., 250 service hours, contemporaneous logs, and separate records). Triple‑net leases and pure investment arrangements are disfavored unless you can demonstrate genuine business activity. Document your processes and time.
Do I really need separate bank accounts for each LLC?
Yes. Courts look for separateness. Keep one operating account per LLC (and a separate security‑deposit escrow where required). If money moves between entities, paper it as an inter‑company loan or capital contribution. Clean books also make lending and dispositions painless.
Should I form in Delaware or Wyoming for privacy and just operate everywhere else?
You can, but you’ll still foreign‑register where each property sits and comply with that state’s annual reports and fees. Also, federal Beneficial Ownership Information (BOI) reporting (Corporate Transparency Act) requires most small LLCs to disclose their real owners to FinCEN; anonymity on a state’s website does not equal anonymity to banks or the federal government. Keep privacy in perspective.
What about homestead protections if I move my former home into an LLC and rent it out?
Deeding a primary residence into an LLC often forfeits homestead protections and may alter insurance coverage. If you intend to keep homestead status (or move in/out seasonally), discuss trust‑based alternatives and insurance with counsel before you record any deed.
Are series LLCs safe to use for rentals?
They can work in specific states, but recognition is not uniform. Title insurers and lenders in non‑series states may ignore internal shields, and cross‑border operations invite conflict‑of‑law questions. If you own (or could own) in multiple states, plain child LLCs are easier to finance, insure, and explain to buyers and courts.
What happens if a court claims “alter ego” and tries to pierce the veil?
Your best defense is habits, not clever documents: (1) separate banking; (2) signed leases and vendor contracts in the LLC’s name; (3) adequate insurance; (4) minutes/consents for major actions; (5) no personal use of entity funds; and (6) capitalization commensurate with risks. When those boxes are checked, veil‑piercing claims usually fade quickly.
Can my spouse and I hold LLC interests as community property or tenants by the entirety?
Yes, but choose intentionally. In community-property states, holding membership interests as community property can preserve a double step-up in basis at the first spouse’s death (state-specific). Tenancy-by-the-entirety (where available) can shield against a creditor of only one spouse. Align title to the membership interests (not the real estate) with your state’s regime and your asset-protection goals; reflect it in the Operating Agreement and on the membership ledger.
Do I have to re-paper existing leases when the landlord changes to the LLC?
At minimum, give a written notice of new owner/agent with updated payment instructions and W-9 details. Best practice is to execute an Assignment and Assumption of Lease and Rents from you to the LLC, effective on the deed date, and (for commercial or business tenants) request tenant estoppel certificates to confirm no defaults or side agreements.
What should a lender-consent letter actually say?
Request a limited waiver of due-on-sale solely for the transfer to your wholly owned LLC; confirm the same note and deed of trust/mortgage remain in force; restate the guaranty (if required); attach the executed deed (unrecorded) and the LLC’s good-standing evidence; and provide the updated insurance certificate naming the LLC. Ask for the consent on lender letterhead or via their formal assumption/consent form.
How do I move security deposits when title moves to the LLC?
Transfer the deposit funds into an escrow account titled to the LLC, preserve the chain of custody (old balance, accrued interest, new account details), and issue the statutory new-owner/agent notice within the required period. Keep separate ledgers for each unit; if interest is mandated, calendar the annual statement.
Will contributing a mortgaged property to a multi-member LLC trigger taxable gain?
It can. Contributions are generally non-recognition under §721, but if your share of liabilities under §752 decreases (e.g., the partnership “takes” more debt than your share), you can have deemed cash distribution and gain recognition. Transfers followed by cash-outs within two years risk disguised sale treatment. Model this before you sign anything.
Can I move the property into an LLC and immediately refinance or sell?
Expect seasoning requirements. Many lenders want 3–12 months of title in the borrowing entity. Title underwriters may also ask for a quiet chain if you sell entity interests instead of the dirt. Plan your recording date around lender/underwriter timelines to avoid rate-lock or closing delays.
How should I structure a management company relationship with my holding LLCs?
Use a written Property Management Agreement: define scope (leasing, repairs, accounting), market-rate fee, indemnities, insurance requirements (manager as additional insured; owner as additional insured on manager’s policy if appropriate), authority thresholds, trust-account rules for deposits, and termination for cause/convenience. Keep management active income separate from passive rental income.
Are short-term rentals (STRs) different for entity planning?
Yes. STRs carry higher premises liability, local-tax collection and permitting, and sometimes ADA/habitability scrutiny. Use dedicated STR-only LLCs, STR-specific insurance (not standard landlord DP forms), and strict house-rules/indemnities. Expect separate local registrations and taxes even if you use a platform.
Does the federal BOI (beneficial-owner) reporting apply to my rental LLC?
Unless an exemption fits, yes. Most small LLCs must file a Beneficial Ownership Information report with FinCEN and update it after changes (e.g., new members/managers, address, ID). Coordinate filings any time you restructure ownership or add entities; your privacy-state strategy does not avoid BOI obligations.
What happens to my homestead if I convert a former residence to an LLC?
In many states, deeding a primary residence into an LLC destroys homestead protections and may alter tax caps or exemptions. If you’re transitioning to rental but care about homestead/creditor protection, evaluate trust-based alternatives and timing before you record.
Do I need to foreign-register if a third-party manager runs everything in the state?
Owning and regularly leasing real property in a state is typically “doing business” even if a manager handles the day-to-day. Expect to foreign-qualify, maintain a registered agent, and file annual reports in the property state.
How do charging-order differences by state affect my design?
States vary on whether a creditor can go beyond a charging order for LLC interests (foreclosure, orders to compel distributions, etc.). If asset protection is paramount, prefer jurisdictions with exclusive charging-order remedies and consider multi-member status with real capital at risk—then keep governance and records tight to avoid alter-ego arguments.
What insurance endorsements should I ask for after the transfer?
For title, request Additional Insured and Non-Imputation endorsements so coverage follows the asset and you aren’t penalized for prior owner knowledge. For liability, ask your broker about additional insured status for managers/owners as appropriate and waiver of subrogation endorsements where vendor contracts require them.
Do tenants issue 1099s after the landlord becomes an LLC?
Only business tenants paying $600+ in rent must issue Form 1099-MISC; individual residential tenants typically do not. Provide an updated W-9 with the LLC’s EIN to any tenant or entity that needs it (and to vendors your LLC pays who require 1099-NEC).
Can I keep privacy without breaking bank/recorder rules?
Yes—by separating record title from beneficial ownership (e.g., trustee on deed; LLC as beneficiary) and using a manager-managed LLC with the manager as public face. But banks and title companies will still KYC the beneficial owners, and BOI reporting applies unless exempt.
What if a member dies or divorces—does the property get stuck?
It can if your documents are silent. Your Operating Agreement should hard-code buy-sell triggers (death, disability, divorce, bankruptcy), valuation mechanics (appraisal or formula), funding (insurance or installment notes), and transfer restrictions so interests don’t drift to heirs or ex-spouses without consent.
Do I need workers’ comp if I put a superintendent on payroll?
If the LLC is the employer, treat the super as an employee unless a lawful contractor classification clearly fits (rare for onsite roles). That means workers’ comp, payroll tax compliance, and safety policies. If you hire through a manager or PEO, contractually allocate compliance and verify certificates.
How do I prevent contractor liens from blowing back on other properties?
Contract in the specific property LLC’s name, require lien waivers with each progress payment, verify licensure/insurance, and consider payment and performance bonds on larger jobs. Keep each LLC’s vendor relationships discrete; don’t let your management LLC incur obligations without a back-to-back agreement.
This article is general information for sophisticated readers. It isn’t legal or tax advice for your specific situation. Laws, fees, and lender/insurer practices change—confirm current rules before you file or record.