Limited liability companies generally protect owners from individual responsibility for business debts or obligations. You can form a LLC for a property rental entity. The LLC will be considered domestic if you apply in the state where you live or principal place of business exists. Foreign LLCs are created when a LLC based in another state wants to operate in a different state. Some states allow single-member LLCs, which are owned by one person.
Submit the articles of organization along with the appropriate fee. For example, Florida charges a $25 filing fee while California charges $70. Your operating agreement describes the company's rules and procedures as well as manager duties and responsibilities, such as who has authority to enter contracts. Although you do not need to submit one to the state, you should still prepare an operating agreement. To report profits from the rental property on your personal taxes, consider establishing a member-managed LLC (managed by owners not third parties or outsiders). You also can try to minimize tax obligations by including rental properties in a trust and transferring ownership of the trust to the LLC.
Prepare articles of organization that describe the company's name and purpose. You must disclose all of the company owners and the registered agent (the person who accepts service of process if the company is sued). You can serve as the agent or hire a third party like an attorney. You can submit articles of organization for your rental management company or for each property that you manage. Creditors might pierce the corporate veil and sue you personally if you form an LLC for each property but actually manage all properties together (fraudulently form separate LLCs with same officers and directors).
Create a business plan that describes projected revenues and expenses, if you need financing in order to operate your rental business. You can approach possible investors before or after the LLC is completely formed. Contact your mortgage lender to rewrite any loans that you obtained personally rather than under the LLC. If any rental properties are under your name (cite you as main borrower versus LLC), you erase the main benefit that the LLC provides (namely limited liability exposure for owners).
Distinguish your personal assets like your home and car continuously from the LLC's properties. Contact your state's secretary of state to determine filing requirements and fees. Most states publish information online for free and even accept electronic applications. Find out if you need additional permits, such as a broker or rental license. Many counties require rental licenses, which establish property maintenance or inspection standards.
Search for rental properties in your target locations. You can minimize expenses by purchasing foreclosed properties at tax deed sales. Make sure that you consistently use the LLC's legal name like when you buy properties, schedule services, such as utilities and landscaping, and prepare tenant contracts.
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