How and Why to Put Your Property into an LLC

We get asked all the time: “should I put my investment property into an LLC?”

The answer is what you’d expect - it depends.

Let’s go through the reasons why you might consider putting your investment property into an LLC.

Why Consider Putting Your Property into an LLC

Before we delve into the "how," let's first understand the "why" behind this strategy. There are several compelling reasons to consider using an LLC for your property:

1. Asset Protection: One of the primary benefits of an LLC is that it provides a layer of protection for your personal assets. If legal issues arise related to the property, your personal assets, such as your home and savings, are typically shielded from liability.

2.Limited Liability: The name itself, Limited Liability Company, reflects a key advantage. As a member (owner) of the LLC, your personal liability is usually limited to the amount you've invested in the property. Your personal assets are separate from those of the LLC.

3. Tax Flexibility: LLCs offer flexibility in terms of taxation. You can choose to have the LLC treated as a pass-through entity, where income and losses are reported on your personal tax return, or as a separate entity, which can be advantageous for certain tax situations.

4. Ease of Management: Managing rental properties through an LLC can simplify your responsibilities. It separates your personal finances from the property's finances, making it easier to track income and expenses.

So if you’re convinced an LLC is the way to go, next you’ll need to know how to go about putting your property into an LLC.

How to Put Your Property into an LLC

Now that we understand the "why," let's explore the "how" of putting your property into an LLC:

1. Choose an Appropriate Name: Select a unique and available name for your LLC that reflects its purpose. Check with your state's business registrar to ensure the name is not already in use. In Oregon, here’s where you go to register your business name.

2. Register Your LLC: File the necessary paperwork with the Secretary of State office to officially establish your LLC. This typically involves submitting Articles of Organization and paying the required filing fee. In Oregon, the filing fee is $100 annually.

3. Designate a Registered Agent: You'll need a registered agent for your LLC, which is a person or business responsible for receiving legal documents and correspondence on behalf of the LLC. This agent must have a physical address within the state where your LLC is registered. You can be the registered agent or you can pay someone to be the registered agent for you.

4. Create an Operating Agreement: While not always required, it's highly recommended to create an operating agreement that outlines how your LLC will be managed, including the roles and responsibilities of members and managers. You can find templates online to create this document easily. Your bank will likely ask for this document when you go to open up a business bank account.

5. Transfer the Property: To put your property into the LLC, you'll need to transfer ownership. This typically involves executing a deed that conveys the property from your name to the LLC's name. One way to do this is with a local title company. You can fill out the paperwork and they can get it filed and recorded for you. Another option is to use a real estate attorney in your area.

6. Update Records and Accounts: Update all relevant records, including property titles, insurance policies, and utility accounts, to reflect the LLC's ownership. Open a separate bank account for the LLC to manage rental income and expenses. You’ll need the Operating Agreement to do that.

7. Comply with Local Laws: Be aware of local regulations, including property taxes, zoning laws, and landlord-tenant laws, that may apply to your rental property. Compliance is crucial for the ongoing success of your LLC and to make sure you don’t “pierce the veil” by mixing personal and business assets.

Putting your property into an LLC is a strategic move that can offer you valuable asset protection, reduce your personal liability, and it may offer some potential tax benefits. You’ll want to consult with legal and financial professionals to ensure that this approach aligns with your specific circumstances and goals. With the right guidance, you can enjoy the advantages of LLC ownership while safeguarding your real estate investments.