When it comes to building wealth, owning rental properties can be a highly effective strategy. With rental real estate investments, you build equity in properties while your tenants make the payments for you. But owning rental property is not without risks.

Adequate insurance coverage is critical…but sometimes it’s not enough. If you are sole owner of the property, you can be held personally liable for any resulting injuries or damages, over and above what insurance covers.

Fortunately, there are multiple methods for reducing personal liability on rental real estate properties. The accomplished real estate team at Reager & Adler, PC has been helping clients protect and preserve real estate and other assets for decades.

Can’t I Just Place My Rental Real Estate in a Trust?

Limited liability companies (LLCs) offer significant protection against personal liability, as long as they are structured properly. Establishing an LLC also provides many other estate planning benefits, such as the ability to avoid probate.

If forming an LLC for protection against rental real estate liability is an effective strategy for you, we can help you navigate this process seamlessly. Contact us today for a confidential consultation.

What is an LLC?

The primary feature of an LLC is that it provides “limited liability,” which means that members are protected from personal liability against lawsuits and business debts.

In layman’s terms, if you cannot pay creditors associated with your rental real estate business, those creditors can’t come after your home, car, or any other personal property. The only assets at risk are those held by the LLC itself.

How Does Putting Rental Real Estate Property in an LLC Protect Me Personally?

An LLC protects you from personal liability by putting the title to your real estate property in the LLC, rather than having you, the individual, continue to hold it. You can be the sole owner and manager of the LLC, handling all of its day-to-day operations, or you can split ownership 50/50 with your spouse or another member. You can also place your interest in a revocable trust, avoiding probate on any LLC interest when you die. If you and your spouse each hold a 50% membership interest in the LLC, you could each place your membership interest in your trust.

How Do I Set Up an LLC For My Rental Real Estate?

Once you have formed the LLC, you will receive a tax identification number and can use this to open a checking account in the LLC’s name. The rental agreement will be between the tenant and the LLC, not you.

Important Things to Note When You Put Your Rental Real Estate in an LLC

  • Notify your accountant about the LLC as soon as possible, so that any required tax filings can be prepared in a timely manner.
  • Update your insurance carrier with the new information, as the property will now have a new owner.
  • You must file a report for your LLC annually, or it will eventually be dissolved. Although you can do this on your own, having your lawyer file the report on your behalf can ensure that it’s done correctly, and on time.

Contact Reager & Adler, PC Today

Whether you own dozens of rental properties or just purchased your first, you may derive substantial liability protection and estate planning benefits by placing your property in an LLC. The legal team at Reager & Adler, PC will work closely with you to develop the legal strategy best suited to your unique goals and objectives.