I Bought A Rental Property...Now What?

April 3, 2017

Many people don’t think of their rental property as a business. Especially if they have a full time job and manage it on the side. However, it truly is a business enterprise. Since it is a business, you should treat it like one.  It should have its own business entity formed for the purpose of separating your personal income and assets from the rental business. There are many forms of business entities but with the large risks you are taking on, having tenants reside in a home you own, you should really consider one that limits liability.

 

When I advise clients on the structure of their rental business entity, simplicity is key. Devising a plan that maximizes protection while keeping administrative tasks low is the main focus. That is certainly true during tax season. To maximize LLC protection of your personal assets, having one LLC for each rental property is not a bad idea. However, there is no need to create a separate bank account and file taxes for each one.

 

Choose a single LLC to be the parent LLC to all others and elect pass through taxation to the parent company. That means one bank account, one 1099 tax form and one business with which all your tenants do business. Of course there is the other option, you could create a single LLC to manage all properties and hold all property’s title.

 

The final and most important piece: these LLC’s must actually hold title to the property. It can not be in your personal name and receive the protection from the LLC. That means that each rental property must be deeded into the LLC as your capital contribution to that LLC forming.

 

Added protections come in the form of an umbrella insurance policy. Adding insurance protections for your business will save you in the event the unplanned for disaster strikes. Contact an insurance broker that has the ability to shop around for different policies and different insurance providers. I recommend Paul Schweger of Denver Insurance.  

720-446-5566
Paul@DenverInsuranceTeam.com

 

 

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