Mon – Fri 9-6 EST
Sat-Sun Closed
9465 Counselors Way Suite #200, Indianapolis, IN 46240

Creating an LLC for Single Family Rental Properties: Advantages & Disadvantages

LLC for Single Family Rental Properties

LLC for Single Family Rental Properties

Single family rental properties offer a number of advantages to the owner.

Generally, the time between when you acquire one and when you can begin renting is minimal – meaning cashflow begins ASAP.

Nonetheless, many provide great returns with low overhead and the promise of tremendous resale values.

However, the means by which you own one of these properties will have just as big an impact on your portfolio as the actual home itself.

That’s why most investors choose to use an LLC for single family rental properties.

Three Pros of Using an LLC for Single Family Rental Property Loans

Limited Liability Companies (LLCs) were introduced more than 40 years ago. However, they’ve really grown in popularity among real estate investors over the past decade.

Here are the three key reasons why.

1. Superior Protection Against Personal Liability

The main reason to form an LLC as the owner of a single-family rental property is that it offers protection against personal liability.

There is no shortage of opportunities for a resident to sue their landlord over injuries or other problems related to the property.

Even if you go to great lengths to ensure that your property is safe, there are endless scenarios you probably wouldn’t consider.

For example, imagine your tenant throws a party and one of their guests slips on the stairs, requiring medical attention. Whether or not they’re justified, they probably wouldn’t have too much trouble finding a lawyer who would sue you for your property’s “unsafe condition.”

If you don’t have an LLC, this kind of lawsuit would name you as being personally responsible, which means you’d need to defend your personal assets.

If you do have an LLC, then your personal assets are protected and only those held by the LLC are exposed to the lawsuit.

2. Reduced Exposure vs. Liability Insurance

Many real estate investors assume that the work involved with forming an LLC isn’t worth the “trouble” – a topic we’ll explore a bit more below.

Instead, they opt for conventional liability insurance.

The problem is that liability insurance comes with limits and exceptions. While it’s unlikely to happen, a loss that eclipses the limits of your policy would produce absolutely devastating consequences.

Given the very low-barrier-to-entry involved with forming an LLC and the massive downside of being caught without one when you need it, it’s hard to argue against taking out this extra layer of protection.

3. The Advantages of Pass-Through Taxation

Finally, the IRS treats real estate holding companies with just one owner just like they do a sole proprietorship.

Therefore, as an LLC, your income “passes through” the company and is right to you, the owner. You only need to pay taxes on that income once, yet you still receive all of the protections owed to you because of the LLC.

Three Cons of Using an LLC for Single Family Rental Properties

Even with the above advantages of using an LLC for single-family rental properties, no solution is completely perfect.

Here are the three potential drawbacks of this solution.

1. It Costs Money to Register an LLC for Single Family Rental Properties

The aforementioned benefits come at a cost. You’ll need to pay to form an LLC and to maintain it. There will most likely be an extra cost involved for preparing your taxes, too.

2. Vague Asset Protection

This isn’t so much a drawback as a word of warning. Every LLC isn’t the same. Simply adding those three letters to a deed doesn’t guarantee protection during the worst-case scenario.

Instead, you need to do your due diligence to ensure that the professional who helps you create your entity. There’s a world of difference between someone with experience helping rental-property owners and a rookie who creates LLCs for anyone.

3. Financing Can Be Difficult

Most lenders want to know that someone will be held personally liable before they provide a loan. This is why some people avoid using an LLC for single-family rental properties. They’d actually rather make their purchase in cash.

Make the Most of an LLC for Single Family Rental Properties

For most investors, the advantages of using an LLC for single family rental properties far outweigh any drawbacks, provided they can find a lender who will work with them.

At Rental Home Financing, we specialize in providing investors with the funding they need to continue expanding their portfolios.

And, yes, this even includes offering blanket loans for LLCs, often even it its brand-new.


Apply online today and you’ll be one big step closer to the financing you need for the single-family rental property you want.



Rental Home Financing Investment Loans

Read 2677 times

Rental Home Financing
9465 Counselors Way
Suite #200,
Indianapolis, IN 46240


Fast Online Loan Application
Apply Now!

CALL TODAY: 888-375-7977

About Rental Home Financing:

Rental Home Financing, as the best mortgage lenders we originate rental home loan products and cash out refinance investment property loans as the best investment property refinance lenders. Commercial blanket loans are available with a commercial purpose to suit your needs.

Also, as DSCR loan specialists, we are currently authorized to make such loans in most all areas of the United States. Specific circumstances will determine whether we have the ability approve/close portfolio rental home loans in your state(s). When you are ready to get a mortgage for rental property, we are ready to serve you.

© Copyright 2024 Rental Home Financing. All Rights Reserved. is a subsidiary of
Direct Money Lenders Inc. NMLS #144773