If You Own a Rental Property, Should You Have an LLC?
- Marc Lowe
- Jan 30
- 5 min read
I was talking with a successful artist in Nashville who had been throwing around the idea of buying a rental property. I talked about the experience I had of converting our Texas home into a rental and how stressful that was at the time. The reason we did it was that the way interest rates were back then, it made it a difficult seller's market. So instead of selling, we renovated the property with new heating and cooling, new floors and a fresh coat of paint. This was in 2024, you see the huge spike in rates in the chart below from Yardeni Research.
After we finally got it finished, after many delays, we rented it out to a tenant.
After getting it rented out, we took the time to do a bit of risk management which is what I started to explain to him. By the time we spoke again he had decided he was going to do it and buy the rental.
It was exciting news but that's when I asked him the question:
How do you plan to protect yourself if something goes wrong?
This took us down the rabbit hole about risk management when it comes to real estate.
The Hidden Risk of Rental Property Ownership
When most people think about risk in real estate, they think about things like:
Vacancy
Unexpected repairs
Rising insurance or property taxes
Interest rate changes
Those are real concerns. But for many landlords, the biggest risk isn’t financial—it’s liability.
If someone slips on an icy walkway, gets injured on a broken step, or claims negligence as a tenant, you’re not just dealing with inconvenience. You’re dealing with lawsuits, legal costs, and potentially judgments that can reach far beyond the value of the property itself.
Yes, landlord insurance helps. Yes, umbrella policies add another layer.
But if you own the property in your personal name, those protections may still leave your other assets exposed.
That’s where the conversation around LLCs usually starts.
What Is a Real Estate LLC (and Why Investors Use Them)?
An LLC—short for Limited Liability Company—is a legal structure designed to separate you from the business activity of the property.
When a rental property is owned by an LLC:
The LLC owns the property
The LLC collects rent
The LLC is responsible for liabilities tied to the property
If a tenant or visitor sues, the claim is generally limited to the assets inside the LLC—not your personal savings, brokerage accounts, or other properties.
That separation is the primary reason many real estate investors choose this structure.
When I set up my own rental property in Texas, liability considerations were an important part of the decision-making process. The goal wasn’t just income—it was making sure one property couldn’t derail everything else I was building.
LLCs and Multiple Properties
If you own more than one rental property, the structure matters even more.
Many investors choose to:
Place each property in its own LLC, or
Group similar-risk properties into a single LLC
The idea is to contain the blast radius.
If one property has a serious issue, it shouldn’t automatically put the others—or your personal balance sheet—at risk.
That said, LLC protection isn’t bulletproof. If you personally cause harm through negligence, or if you fail to operate the LLC properly, a court can still “pierce the corporate veil.”
Structure helps—but mitigating risk matters.
What About the Mortgage?
This is where things get nuanced.
If the property is purchased directly by the LLC, the mortgage is in the company’s name. In that case, the debt typically stays tied to the business.
However, many lenders still require a personal guarantee, especially for newer investors. If you personally guarantee the loan, your personal assets could still be exposed if the debt goes unpaid.
This is one of those areas where legal, lending, and planning decisions intersect—and where getting advice before you close matters.
The Tax Side of an LLC
From a tax standpoint, LLCs are often simpler than people expect.
Most real estate LLCs are treated as pass-through entities, meaning:
Profits and losses flow directly to your personal tax return
There’s no corporate-level tax
You still benefit from depreciation and other real estate deductions
In many cases, the tax treatment looks very similar to owning the property personally—but with added liability protection layered on top.
By decreasing the liability risk, you can increase the intrinsic value of your rental property business.
Timing Matters More Than People Realize
Ideally, an LLC is set up before you buy the property.
Transferring an existing property into an LLC can create complications, especially if there’s a mortgage involved. Some loans include a due-on-sale clause, which allows the lender to demand full repayment if ownership changes.
That doesn’t mean transfers are impossible—but it does mean you should never do it without checking first.
So…Should You Use an LLC?
An LLC isn’t automatically the best move for every rental property. But for many investors, it offers:
Meaningful liability protection
Cleaner ownership structure
Flexibility if you invest with partners
Peace of mind as your real estate footprint grows
Owning my rental property in Texas reinforced something I see over and over with clients:
It's not always about playing offense, you have to think about defense as well, if not more so.
The way you structure your real estate business is important. The wrong structure can turn a good property into a long-term headache.
The Bottom Line
Rental real estate can be a powerful tool for building long-term wealth—but only if it’s paired with thoughtful planning.
Before you buy, refinance, or transfer a property, take the time to step back and ask:
What’s my real exposure here?
What am I trying to protect?
And how does this property fit into the bigger picture?
That’s a good way to ensure you are thinking about the whole picture.
About the Author
Marc Lowe, CFP® is a fee-only fiduciary advisor based in Waterford, CT, helping pre-retirees & small business owners make smarter financial decisions.
The information presented in this article is the opinion of the author and does not reflect the views of any other person or entity unless specified. The information provided is believed to be reliable and obtained from reliable sources, but no liability is accepted for inaccuracies. The information provided is for informational purposes and should not be construed as advice. Advisory services offered through In The Money Retirement, an investment adviser registered with the state of Connecticut. The information linked to on third-party sites is being provided strictly as a courtesy and convenience. We make no representation as to the completeness or accuracy of information provided at these websites. When you access these websites, you are leaving our website and assume any and all responsibility and risk for use of the web sites you are visiting.The tax and estate planning information offered by the advisor is general in nature. It is provided for informational purposes only and should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.
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