As someone who invests in rental properties, you probably put in long hours, both in terms of adding to your portfolio and maintaining your current list of holdings, too. In fact, you’ve probably been putting in those long hours for years.

That’s why it’s so important that you also make every effort to protect the portfolio you’ve worked so tirelessly to build.

While hiring the right financial and legal counsel is always a good idea, there’s one other step you can take that will make all the difference to the future of your portfolio. Start buying property through an LLC, and you’ll have a much easier time keeping your real estate holdings secure and enjoy a number of other benefits, as well.

In short, a limited liability company (LLC) is able to act as an independent legal entity, separated from the person who started it. Among other things, this means LLCs can receive tax identification numbers, open bank accounts, and conduct business – all as a distinct entity unto itself.

This interesting legal arrangement can do much more, though.

As a real estate investor, an LLC will also benefit you in the following four important ways.

As the name suggests, a limited liability company was designed largely to limit the amount of liability its members faced in the event of legal actions.

The most common example of how this works is when a company goes bankrupt. If it’s an LLC, the members generally won’t be held accountable by the courts and forced to pay the company’s outstanding debts out of pocket. Even if the LLC’s assets are unable to cover its debts and liabilities, members will usually be safe from the claims of creditors.

For real estate investors, buying property through an LLC is all about peace of mind. It costs nothing to start and maintain an LLC compared to what it could cost to settle a lawsuit because, say, a tenant claims they slipped and hurt themselves due to a loose tile.

Don’t make the mistake of thinking liability insurance will be sufficient, either. That kind of policy tends to come with all kinds of limitations, carve-outs, exceptions, and other features that won’t give you sufficient protection during the worst-case scenario. A big enough lawsuit and you could actually end up having to sell your property to help settle what you were ordered to pay.

Another reason all real estate investors should be buying property through an LLC is because of pass-through taxation. The savings from this benefit alone will be more than enough to cover whatever costs are involved with forming and maintaining an LLC.

That’s because pass-through taxation ensures that, despite the fact that your LLC is a separate legal entity, it doesn’t have to pay taxes. Instead, it “passes through” that taxes to you, the owner. You pay the taxes just once instead of your real-estate investment company paying them and you, as an employee, paying your personal income taxes, too. This protection from double taxation applies to both the income you receive from your properties’ tenants and the appreciation in value of your holdings upon disposition.

Even better, you can deduct mortgage interest on your taxes every year, too.

So, another way to look at the prospect of buying property through an LLC is that you’re probably needlessly losing money if you don’t.

There may be any number of different reasons people with large real-estate portfolios want to protect their anonymity.

One reason is that they don’t want disgruntled tenants (or former tenants) being able to look up where they live and drop in uninvited. Someone who was recently evicted may decide it’s a good idea to go find their landlord and argue the point.

Some investors simply don’t want people knowing when they’re selling properties or otherwise modifying their portfolios.

Buying property through an LLC means that the company is actually listed in the public record as the owner of the property. Any records about buying or selling would also lack the name of the actual investor doing it.

If you’re a parent, one of your motivations for investing in property may be so that you can leave something behind for your heirs or even hand it down to them upon retirement.

While this is a wonderful sentiment, it’s difficult to do effectively unless you’re buying property through an LLC. Otherwise, it’s inevitable that taxes and fees – which can be significant in many states – will dispense with much of what you’re trying to pass along.

By buying properties through your LLC, you can bestow that real estate to your heirs by proactively gifting them membership interests in the company every year. Eventually, you can actually gift them everything – complete ownership – without having to actually record and formally execute a new deed. That means all the taxes and regulations related to transferring the interest can be totally avoided.

Using an LLC for estate planning like this works for more than just property holdings, too. You can hand down a number of different investments without having themfirstpillaged by taxes.

Buying property through an LLC has no real downside but doing so does offer four very compelling reasons to get started forming your limited liability company right away. No matter where you’re located, you shouldn’t have any trouble finding a legal representative who can help.

Once it’s formed, you can get back to building up your portfolio.

At Rental Home Financing, we’d love to help.

Contact us today to learn about the many different financing services we have to offer or, if you already know what kind of loan you need, feel free to begin the online application process right away.