Should I start an LLC for real estate investing

Why real estate investors should consider creating a LLC for real estate investing

Do you own investment property? If so, have you thought about the advantages of holding that property in a limited liability company (LLC)? Many Wisconsin real estate investors overlook this option, leaving their personal assets at risk. As a Wisconsin real estate attorney, I often counsel clients on the benefits of using LLCs to protect their investments.

The risks of owning property in your name

Let’s start with a real-world example. A local landlord owned multiple rental properties in her name. When a fire destroyed one of her homes, the insurance payout wasn’t enough to cover rebuilding costs. This led to missed mortgage payments and eventually foreclosure. While no one was hurt, the financial fallout was devastating.

Owning property in your name personally exposes you to significant risks. If something goes wrong, your personal assets—your home, savings, or other investments—could be on the line.

How an LLC protects you

An LLC separates your personal assets from your business assets, providing a shield against liability. If your LLC is sued, only the assets held by the LLC are at risk, not your personal finances. This structure also simplifies ownership transitions in the event of a sale or inheritance.

Should you use one LLC or multiple?

Many investors wonder whether to consolidate all their properties into one LLC or create separate LLCs for each property. The answer depends on your specific situation, especially your voluntary liability exposure:

• Voluntary liability
  

  This refers to risks you’ve knowingly taken on, such as relying entirely on rental income to cover mortgage payments. For example, if you experience an extended vacancy and can’t pay the mortgage, your exposure is high. In such cases, separating properties into individual LLCs might make sense.
  
  

• Involuntary liability
  

  These are risks outside your control, like property damage or accidents. Most involuntary liability is covered by insurance, which helps mitigate this concern.
  
  

Factors to consider for LLC investing

When deciding how to structure your LLCs, think about:

• Financing terms available individually versus through an LLC.
• The size and value of your property portfolio.
• Your debt-to-value ratio.
• Other income sources to cover expenses during vacancies.

Each investor’s circumstances are unique, so a one-size-fits-all approach doesn’t work.

Take the next step

Using an LLC for your real estate investments can save you time, money, and stress while protecting your personal assets. Whether you’re building a portfolio or managing existing properties, understanding your options is essential.