I want to become a landlord

Question

should i start a llc to keep my business issues from personal issues? i read this was a good idea when flipping houses, is it the same for renting them?

Answer 1

Here is the reality - most people do not own enough property to justify the costs and annual fees of putting together a corporate identity.

There are a lot of legal advisers out there that will tell you otherwise. However, if you only own a few low cost properties - you would be just as well served by getting a Million Dollar Comprehensive Insurance policy.

I would say if you have more than a million dollars of property, then I would start looking into making a corporate identity. Balance the costs and benefits.

Answer 2

can't you find an easier way of torturing yourself.  Being a landlord is time consuming,frustrating and at first not all that profitable.  But yes run it like you would any business.  separate accounts and really precise bookkeepping because you will need at at tax time.  I would talk to other landlords in your area and find out all you can before you even buy your first property

Answer 3

It is always a good idea to keep the two apart.  

Answer 4

You don't need an LLC to keep your personal and business funds separate; all you need is separate bank accounts.  About all that an LLC does for most folks is generate extra costs for little or no benefit in return for those costs.  Most landlords show a tax loss for many years but an LLC is often subject to minimum franchise fees at the State level regardless of profit or loss.  In CA for example, that will cost you an extra $800 per year just to put those 3 little letters after your (or the DBA's) name.

Although an LLC can provide limited protection of your personal assets from claims against the business, you can ALWAYS be sued for your PERSONAL liability for your actions.  An LLC won't protect you at all in that case.  

An LLC isn't a great idea for a house flipper either.  Your biggest pitfall in flipping will be meeting the mortgage payments during the renovations and until the property sells.  Even if the property is held by the LLC, the bank will demand your PERSONAL guarantee on the mortgage so the LLC is useless there.  And unless you have at least 25% of your cash in the deal, they'll often require a security interest in YOUR home as well.  Again, the LLC doesn't protect you there.

Holding the property in your name, along with a good general liability policy is all that most real estate investors need.  My holdings hit about $1.5 mil at one point and I never held title any other way or had a need to.  My liability insurance was less than $400 a year for $2 million in coverage and it even supplemented my auto insurance coverage!

In some cases it may be wise to set up a Real Estate Trust but that's for probate reasons, not for any tax savings or liability isolation.  Consult with a local attorney who specializes in real estate law, trusts, and small business issues for guidance specific to your situation.  In most cases though, an LLC won't be needed or recommended.