Should a Landlord Establish an LLC for a Rental Property?

If you have a real estate business, you're bound to come across this question at one point: "Should you get an LLC for your real estate business?" Depending on your business goals, answering "yes" to this question could be vital in keeping your rental business alive for a long time and personal assets well-protected.

But what exactly is an LLC? What can it do for you? What should you know about it? What are the upsides and downsides to an LLC? Find out what you need to know right here:

What is an LLC, and what can it do for you?

LLC is a shorter term for the phrase "limited liability company." A limited liability company draws the line between the owner's personal assets and his business assets. LLC serves to protect the owner from having his personal assets from getting seized in case he runs into legal or financial trouble.

By the same token, If you decide to establish an LLC, it is essential as well not to mix your personal money with your business money. What that means is, you should not purchase an asset for your business using your own money and vice versa.

What to keep in mind when establishing an LLC

If you're interested in getting an LLC for your property, you need to keep the following in mind.

Always keep the property in good condition - If you are ever faced with legal problems, it works in your favor it will be found that your properties are in good shape and there is no negligence from your side.
Keep the title of your properties in the LLC - You should also hold property's title in the LLC. This will make sure that it is indeed protected. If not, you won't benefit from the LLC's legal structure.
Run your LLC as a business - This is vital if you want your corporate veil to stay intact. This means that your LLC needs to have its own bank account. You should also maintain bookkeeping and corporate records. It is also vital that you keep a good record with the state where it was incorporated.

Disadvantages of an LLC

Just like everything else in the world, there are bad sides to making use of LLC. Here are some of them:

The Cost - LLCs can take a large chunk off your bank account. If only it were that affordable, a lot of business owners would have gotten one by now. But in CA alone, there is an $800 annual fee.
Confusing - There are a lot of things that can go wrong with LLC. If you haven't done your homework before getting one, you may end up regretting the entire decision.

As stated, setting up an LLC would depend on your situation and what your business goals are. Moreover, establishing an LLC is a complex process, so it is in your best interest to consult with a financial advisor, a CPA, or an attorney to determine if an LLC will more beneficial for you and your rental business.