Should You Put Rental Properties in an LLC?

Limited Liability Companies (LLCs) can be a powerful tool to protect investors from liability on rental properties. I have a separate LLC for each of my 16 rental properties, but a LLC is not the right choice for everyone. The main reason I put my rentals in a LLC is to protect myself from liability. However, there are many things to consider when deciding to use a LLC for your rental properties. LLCs can affect financing, increase costs and have many negative consequences as well. I am not a lawyer or providing legal advice, and if you have a legal questions please consult an attorney.

For more information on my rental properties, strategies and how I achieve 15 percent cash on cash returns; check out my complete guide to purchasing long-term rental properties.

Why do I put my properties in a LLC?

I have always put my rental properties in a separate LLC for each property. The reason I do this is because of the liability risk that comes with owning rental properties. If you own a rental property in your own name, someone can sue you personally and attack your assets. That lawsuit can not only affect your rental property, but your personal assets as well. If you have your rental property in a LLC with a separate checking account there is a better chance only that rental property will be affected by a lawsuit. Check out this article for more information on how risky is it to invest in rental properties.

How hard is it to put rental properties in a LLC?

In Colorado, it is not very difficult to create a LLC. I have my assistant create the paperwork and submit the documents to the Secretary of State. Each state has different requirements and rules to create a LLC. Some states have a very easy process to create a LLC like Colorado and others are much more difficult. Check out your state’s requirements before you take this on yourself. I learned how to submit the paperwork and how to create the paperwork by looking at the documents for other LLCs that were created by a lawyer.

What does it cost to create a LLC?

In Colorado  it costs $50 to set up a LLC if you create the documents and file yourself. Every year there is a $10 filing fee to keep the LLC active. Other states may charge more or less in fees for a LLC. Here is a list of the fees that each state charges to set up and keep up a LLC.

If you want to hire a lawyer to create a LLC it can cost hundreds and possibly thousands of dollars. When I asked a lawyer to create a LLC for me, he wanted to charge $850. One thing you have to consider when deciding whether to use LLCs is the cost. If it costs you $1,000 to create each LLC and $500 a year to maintain the LLC, it may not be worth it. On the other hand, you may want to use one LLC for all your properties. The less LLCs you use the less protection you will have.

One thing you can do is use a lawyer to create one LLC for you. From that point forward you may be able to copy how he created the LLC, to create more LLCs. However, always check with state laws and attorneys to ensure this is legal. Here is a great resource to find out if it is worth it to get a LLC or not. Anderson Advisors.

Why do you need a LLC for each rental property?

There is the option of putting all of your rental properties in one LLC. According to my lawyers if one rental property is affected by a lawsuit, then all the properties can be affected if they are in the same LLC. Likewise if you have separate LLCs, but have one bank account for all the properties, it can be argued that the rental properties are not separate entities and could all be affected from the lawsuit.

You could also use one LLC for two rental properties or three to reduce your costs, but again all the properties in that LLC could be affected by a lawsuit.

Here is a great article on how much money you can make with rental properties.

Is it harder to get a loan with a LLC on rental properties?

LLCs can help project your rental properties from liability, but LLCs can also create problems. Many banks will not lend to a LLC, they will only lend to an individual person. It is possible to buy a property in your own name, get a loan and then transfer the property to a LLC. The problem with this strategy is the bank may have a due on sale clause. Due on sale means if the property is ever sold to anyone, the bank can call the loan due immediately. Transferring a property from an individual person to a LLC is considered a sale, even if the same person selling the home owns that LLC.

Most people will tell you the chances of a bank calling a loan due, because you sold the property to your LLC is very small. However, it can happen and if they call the loan due, you will have to pay it off by selling the house or refinancing in a very short period of time.

There is the option of putting your rental property in a land trust, which in theory does not allow the lender to call your loan due when you transfer the property to a LLC. For more information on this strategy and how to structure your real estate entities check out Anderson Advisors who specialize in helping investors set up the right entities.

Always talk to your lender before using a LLC for your rental properties

I use a portfolio lender who will lend to a LLC, and that is why I have no problem putting all of my properties into LLCs. My portfolio lender will refinance my properties that are in LLCs and let me buy new homes with a LLC or transfer my houses into a LLC. If your bank does not lend to an LLC, you may not be able to refinance any properties or buy any new properties with a LLC.

Additional ways to protect yourself from liability

If you decide not to use a LLC or want more ways to protect yourself here are some tips.

  • Don’t be a lazy landlord! Make sure your houses have working smoke detectors, carbon monoxide detectors and are safe. Most lawsuits come from a tenant getting hurt or worse because the property was not safe.
  • Get liability insurance. Landlords can also get an umbrella policy that will cover all their properties and protect against lawsuits. Take to your insurance agent about your options.


A LLC offers a lot of protections in case of a lawsuit against a rental property. However, you will have to decide if that extra protection is worth the cost and the possibility of not being able to refinance homes or get your loans called due. If you plan to use LLCs, always talk to your bank first to make sure they are okay with it. Always consult your attorney about using a LLC and making sure it is set up correctly to protect you.

For more information on how to buy the best rentals which will make the most money, check out my book: Build a Rental Property Empire: The no-nonsense book on finding deals, financing the right way, and managing wisely. The book is 374 pages long, comes in paperback or as an eBook and is an Amazon best seller.