Moving Rental Properties into LLCs
Many experienced landlords have moved their properties and put them into LLCs. Today we are talking about the reasons for that move, which is primarily to protect themselves from liability.
Once you put your house on the rental market and you begin earning income from it, you have to change the way you think about that home. I like to think about it as becoming a business. It’s no longer your home when you begin renting out a piece of property. You have essentially opened up a business.
Any astute business owner knows that by opening up a business, you are increasing the risk of liability. So, you want to take a sensible step to constrain the liability risk that is inherent in the business of real estate and property management. It’s important to keep your business interests separate from your personal interests so that you don’t put those personal assets at risk because of your business. You don’t want something that happens in your business to end up taking your IRA, for example.
One of the key vehicles for protecting those personal assets is the limited liability company, or an LLC. This is a separate entity that effectively owns your rental property and operates as a business while you rent it out and earn money from it. People sometimes use corporations or limited partnerships or other vehicles for their rental property, but the LLC has emerged as the most popular way to run the business of your rental property and keep all of your personal assets and interests separate from what goes on at your rental home.
If you have any questions about whether you should put your rental property into an LLC, or you’d like any information about investment real estate or property management, please don’t hesitate to contact us at Hoffman Realty. We would be happy to hear from you.