Mark Kohler explains when you need an LLC for rental properties and how to structure them correctly. He warns against cheap online formations and stresses that you need an operating agreement, minutes, a separate bank account, and an EIN to make it actually work. Form your LLC in the state where the property sits.
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Hi, Mark Kohler here with another two minute tax and legal tip. I'd like to talk about the LLC and a rental property. I have so many phone calls from new clients around the country that say, Mark, do I need an LLC for my rental? What should I do? Do I need one LLC? Do I need five LLCs? What should my structure look like? Well, that's a great question. Let's talk about it first. Let's talk about the two groups out there. Now, there's one side of the spectrum that says you should have an LLC for every rental. Well, frankly, I think that's overkill. It can be a lot of cost and maintenance to set up an LLC for every little project. Now, if they're worth 500 grand or a million, or you have multiple partners, I get it. But I'd be cautious of falling trapped to that LLC for every rental strategy. On the other extreme, we've got people that say, oh, just set up one LLC and you can have 25 rentals in one LLC. I don't know if I like that one either. You have all your eggs in one basket and if there's a lawsuit with one property, they can get it all the other properties in the llc. Now, before I give my recommendation, keep in mind one important factor too. An LLC is not just one sheet of paper. Click, click, click online and you're done, folks. You need to have all the pieces and parts, an operating agreement, minutes, a corporate book, a bank account, tax ID number. If you need the protection of that LLC when you show up in court, you better have all that stuff. And we have so many clients that come to us going, I set up my LLC on LegalZoom or some website. What do I do next? And folks, we love to clean those up, get them organized and get you on a maintenance program that could be as little as 150 bucks a year just to maintain the LLC in its proper way. So think about that in this equation because an LLC is more than just one click of a button. So what's my recommendation? Balance. I think your asset protection structure and your LLCs should grow with you. If you get one rental, get an LLC. Now maybe two and three rentals can go into one LLC. I'm okay with that. Let's look at the equity involved. Let's make sure the LLC set up properly in this state where the rental property is located. Not in Wyoming or Nevada or Delaware. Set up the LLC where the property is and start by putting your first rental property in there, maybe your second or third as you start to get 4, 5, 6 or 7 or 10 or 15 rentals. Then maybe we add a second or a third LLC, maybe even a holding company LLC to hold them all. There's all sorts of different strategies with single member LLCs, multi member LLCs using IRAs and LLC and even series LLCs. There's a little bit more than just again going online and click click click. I'll just do it myself. Bottom line, get an attorney involved that understands taxation can set up entities in all 50 states and help support you with with company maintenance and even be an address for you and make it affordable. It shouldn't be thousands and thousands of dollars, but set up LLCs as you grow and as you expand. Don't overdo it and set up an elaborate structure just because you have two rentals. We set up entities for 800 bucks in any state with a full attorney support consultation and paralegals helping do the whole thing. Give us a call if you're interested in and please make sure that you're thinking asset protection and getting the right protection as you grow and not overdoing it. Thanks so much and keep living that American dream. Thanks for watching and if you love that video, I've got a lot more. Please subscribe to my channel and I shoot weekly videos that can help you in your business, personal life and better live your American dream. Also, check out my newsletter free newsletter every week with blog articles, tips, strategies, tax deadlines you'd love it on. Also if you like social media, please follow me on social media with some daily tips and if you like to connect that way it can be a lot of fun. But finally, please check out my tax and legal Library. I have 50 plus videos on these topics and more where I pull out a whiteboard and break them down. Hours and hours of helpful information that can better help you live the American dream.
