In today's Freedom Friday blog and email newsletter, I want to pick up on a topic from a few weeks ago.  A lot of real estate investors come to me, and they want to know about structuring their holding companies.  However, they also want to know about structuring for their individual rental properties, and that's what I'm talking about in today's Freedom Friday blog and email newsletter.  In today's Freedom Friday blog and email newsletter, I'm answering the question, “What is the best business structure for a rental property?”

The short answer is yes, a limited liability company (LLC) is the best business structure for a rental property.  I recommend to my rental business clients that each rental property have its own LLC, and those LLCs are owned by an LLC holding company.  There are many benefits to this structure.  Here are four (4) major benefits to forming an LLC for each rental property.

1.  Reduce Personal Liability

The first major benefit to forming an LLC for a rental property is that the LLC will reduce your personal liability.  If you own a piece of property, and you get sued, your personal assets are at risk.  However, if you own an LLC, and someone sues your LLC, then only the assets owned by the LLC are at risk.  This means that only your rental property and related assets would be at risk, and not your personal residence, other property, personal finances.  Of course, this is generally speaking, and there are exceptions, so you should always ask your attorney for advice in this area.

2.  Separate Rental Properties

The second major benefit to forming an LLC for a rental property is that the LLC can also be used to separate each rental property from the other rental properties that other LLCs would own.  I do recommend that you form a different LLC for each rental property to reduce your risks and chances of liability.  If one of your LLCs gets sued, only the assets belonging to that specific LLC would be at risk, as the other properties would be protected and separated from each other.

3.  Pass-Through Taxation

The third major benefit to forming an LLC for a rental property is pass-through taxation.  Some types of corporations are taxed twice; once regarding the profits of the business, and again when the owners receive dividends or distributions from the business.  If you form an LLC, business income passes through to you as the business owner without double taxation.  For many business owners, pass-through taxation from an LLC reduces the amount of taxes that you owe the government, but always consult a CPA or tax professional in making such decisions.

4.  Separate Business and Personal Expenses

The fourth major benefit to forming an LLC for a rental property is to separate your business and personal expenses.  Once you form an LLC for a rental property, you can also open a separate bank account for each LLC.  This will help keep your business and personal expenses separate from each other, make it easier for you to file taxes, and make it easier for you to understand how much money you're making from your business.  Separate bank accounts also help you clearly know which expenses are for your business, and which are for you personally.

Thinking about starting a small business?  Or maybe your small business is having issues with contracts, leases, business partners, collection issues, or experiencing other barriers to growth?  Please contact me at [email protected] to schedule a FREE strategy session.

For more information about Liberty Legal Solutions, LLC, please visit our website at http://www.libertylegalok.com/