Creating an LLC is a great way to set yourself up for financial and legal success. LLCs limit your personal liability, provide the tax benefit of pass-through taxation, and help separate your rental properties if you own multiple properties. In this article, we’ll walk through the steps for how to create an LLC.
How to Create an LLC
Below is a step-by-step guide to creating an LLC. The bolded steps only apply if you already own the property and have an existing mortgage. Keep in mind that requirements will differ state-by-state.
- Contact your lender and find out if they allow you to transfer title to your LLC. Your lender may increase your interest rate or charge an assumption fee.
- Choose an available business name. You can search for available business names on your Secretary of State’s web page. It’s common for property owners to name the LLC using their property address, i.e. “123 Main Street LLC.”
- Create an LLC Operating Agreement, which outlines the rights and responsibilities of each LLC member.
- Obtain necessary licenses or permits for your business. Some states require you to publish a “Notice of Intent” in a local newspaper.
- Register your LLC with your state.
- Transfer title to the LLC, which means transferring ownership of the rental property from you to the LLC.
- Create a Quit Claim Deed with you as the “Grantor” and the LLC as the “Grantee.”
- Go to your County Clerk’s website and file the deed.
- Set up a bank account for your LLC.
- Update your rental leases moving forward. Your lease should state the LLC as the owner.
- Deposit rent payments in your LLC’s bank account.
How Much Does it Cost to Have an LLC?
Below are possible costs of creating your LLC. Costs differ state-by-state.
- Registering your LLC can cost anywhere from $50-630.
- Publishing a Notice of Intent costs approximately $40.
- Creating an Operating Agreement can cost anywhere from $0-1000, depending on if you use a service like Rocket Lawyer or if you hire a lawyer.
- You may be charged a title transfer tax, which is charged as a percentage of the money you are transferring.
- Filing fees when you register your LLC can be $10-50.
Annual franchise tax can be $250-800.
Annual fee for owning your LLC can cost $9-500.
Your interest rate may increase as a result of transferring title.
Transferring title may trigger tax consequences, depending on the value of your property when you transfer title.
Although there are additional costs associated with creating an LLC, it can also save you thousands of dollars in the case of a lawsuit. Most landlords find it worthwhile to invest in creating an LLC.
LLCs help limit your personal liability, make it easier to complete your taxes, and provide the added benefit of pass-through taxation. Now that you know what steps to take, get started now: Create an LLC.