Most real estate investors will agree the use of LLCs (Limited Liability Companies) in the rental industry is a must for all investors, regardless of the number of properties owned. However, a major value is overlooked, especially for the passive investor, whom does not manage his/her own properties.
The main purpose or value of an LLC is exactly as the title says, to limit the liability of the LLC owner to only the assets held under the LLC. To minimize exposure, each property should be held in a separate LLC and controlled under one master LLC or series LLC. When you set up an LLC, you will receive a federal tax ID for the master LLC, and you should open an checking account under the LLC for all properties (depending on where you live, this is most likely a state law). Utilize a local law firm that practices real estate law to set up your LLC, the cost should be only 300 to 400 dollars. Creating a relationship with a local lawyer is a good idea, as in the future they can assist in other frequently-encountered issues, such as evictions.
While filing for an LLC is relatively simple and could be done by most investors without outside legal guidance, filing individually should be avoided, as the overlooked value of the LLC is the anonymity that the LLC provides. The owner’s name of the LLC is concealed from public record, making it impossible for tenants or others to identify the LLC owner. The only name that is public record is that of the individual that filed the LLC (e.g., your lawyer). Don’t use your name or any other identifying attribute for your LLC name, as this may jeopardize the anonymity of the LLC. This anonymity provides unlimited value for the passive investor, who utilizes property management companies to run their day-to-day operations.