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How to Put Rental Property into LLC

Attorney Thomas B. Burton discusses how to put a rental property into an LLC after you have purchased the rental property. Attorney Burton explains why it is important to use a deed to transfer title to your rental property from your individual name into the name of your LLC if you want to take advantage of the liability protections of your limited liability company in Wisconsin. Attorney Burton also discusses the other important steps you should take after forming your LLC to ensure your personal asset are separated from your business assets and liabilities.

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Hello, I'm Attorney Thomas Burton and welcome to limited liability companies 101.

This is the first installment in my new series on limited liability companies or for short, what you will commonly see, LLC. Limited liability companies came about in the 1980s and they have quickly become one of the most popular forms of business enterprises for entrepreneurs and business owners because of their ability to separate business liability from personal liability and I'm going to cover a variety of topics in limited liability companies 101 or LLC 101 but this is a popular use for limited liability companies, LLC's, is rental property and with today's housing market, this question comes up quite a bit. I'm going to cover this topic today which is "How to put rental property into your LLC".

In today's video, I'm going to cover the steps that you need to do to get your rental property into the LLC, after you formed it. Here you'll see, I have, I'm not an artist, I am a lawyer but I have an example of a house here and this is your company, ABC rentals LLC. Now I'm an attorney, licensed here in Wisconsin, so my advice regarding LLC's will be about setting up and doing this in Wisconsin law, however the process I'm told is similar in many states but just be aware that my process and specific advice is talking about doing it here in Wisconsin. Most states are going to be a similar process but check with a lawyer in your state about how to do it. So the first step is to set up your LLC and in Wisconsin, you might see people call it 'Form LLC'. In Wisconsin, you can do it online, there's a $130 filing fee and I have other videos talking about how to form your LLC. So that filing fee goes to the state of Wisconsin but for today's video, we're going to assume you have your LLC set up and you need to put the rental property inside. Check out my other videos on forming one and if you're interested in forming an LLC, I have a 5-step guide on how to set one up in Wisconsin, I'll put the link in that video. Some people form an LLC on their own, others use a lawyer which I always recommend. It's a good idea, you can get a lot of good business and tax advice setting it up and I've done that for many people in this situation but sometimes, someone comes to me, they already have the LLC set up or they have some other rentals in the LLC and they bought, let's say, a new one and they want to put this house into the LLC.

So let's say, it's 123 main street, now you have two options - some people with rental properties like to put each property into its own LLC to maintain the asset protection about around just that one property and that's why sometimes you'll see, each LLC will be named the same as the street address. Other landlords will be comfortable putting a couple properties into each LLC, this is a decision you have to make based on your risk preference okay? In general, the LLC provides a wrapper and that's our limited liability protection. We have to get the assets into the LLC in order to have that limited liability protection. Some people mistakenly form the LLC but they never get the house inside and the tool we need to do this is a deed okay? You need to actually retitle the property and that's going to be in the form of a deed and in Wisconsin, we'll often use a quit claim deed, if you own it in your individual name, we can use a quick claim deed into your LLC and this just a quitclaim deed means whatever interest I own in the property, I am quit claiming it into the LLC. So it's a lesser form of a deed than a warranty deed, for instance, if you're purchasing a house, you want to get a warranty deed, where you're getting a warranty from the seller but a quitclaim deed can work when it's a transaction from you to essentially an entity owned by you, ABC rentals LLC. In this example, I'm assuming the LLC is a single member LLC that you own. So if we have the LLC set up and you have the rental property but already we can quitclaim the deed into your LLC. Now let's say you just have the property under contract to purchase but you haven't bought it yet but you have the LLC in place, well then, you want to tell the title company the name of your LLC before the closing so that the lawyer preparing the closing documents can title the deed right into the name of your LLC and that's the safest way I recommend and best because you can just do it once at the closing and get the deed right from the get go. So but let's say you have the LLC set up and you're looking around for your first rental property and you just want to know how to do this after you acquire that property. So I'll back up a little bit and talk about how many rentals you can put in one LLC. The answer is you can put as many as you want. So if you want to put 123 main street and then you buy another house and it's 126 main, you can also put that into the LLC when you purchase it. However, some real estate investors like to only put so much into each LLC and the reason for that is the limited liability protection of the LLC, if you get sued for example, let's say, a lawsuit, your goal is to limit your liability to the assets in that LLC. The reason we use the LLC to begin with is so that they cannot sue you personally. Let's say, your personal assets are up here - bank accounts, things like that, the reason it's valuable to use an LLC is to put a box around the assets in the LLC. Now many landlords also use liability insurance, that's a good idea as well. The answer, when people ask me how many should I put in, it's up to you and your risk preference. Some will do one for each property, others will do up to 10 or however many you're comfortable with inside each LLC. So examine that risk profile along with your umbrella insurance limits and again there are some costs to each LLC. There's the filing fee to set it up, attorney fee to set up the LLC and then ongoing you would have the tax return, each year to file for the LLC. Now the great thing for a single member LLC is if you elect flow through taxation, you do not have to file a separate tax return. You can file it on the Form 1041 as schedule C.

For many people starting out, that's a great option. This only works for a single member. If you have a partner, you're going to need to file, partner or another member, I should say of the LLC, if you have two members, you're going to need a partnership return and that's Form 1065 and that is an additional cost, it's not the worst but most people need to hire a separate account to help them prepare this. So just be aware of that but again, returning to our example, if you're one person, you're buying your first rental property, you need to get it into the LLC. Just remember, you need to retitle the deed into the name of the LLC. I've seen examples where people have the LLC and they may even have people paying the rent to the LLC but the deed, the actual asset, the home, is not in the LLC and that's not going to be effective for that asset protection if you get sued or have some other reason you didn't keep the LLC assets inside the LLC.

One other note for today's video is once you get your property into the LLC and you have it separated from your personal assets over here, you want to make sure under the LLC, you have a business bank account and that you run all the expenses and income through that account. That's another important record keeping requirement. So just setting up the LLC is a good step but it's not enough. The courts have looked at this and there's a concept in corporate law called 'Piercing the Veil' and if a plaintiff can show you intermingled, you did not keep the business separate from the personal assets, there's a way under the law, under case law they can pierce the corporate veil and get at your corporate assets. So if you go through the time and expense of set up an LLC, you want to make sure you keep your assets separate. So you want to have a business bank account and then also important, you want to make sure the lease is in the LLC name. When you sign the lease, you want to have it be ABC rentals LLC is the landlord and then you sign it as member ABC rentals LLC or whatever your title is. In Wisconsin, LLC owners are called members and at its basic, you are for sure the member but you may also have another title if it's set up with multiple members but sign all the contracts like the lease in the name of the LLC, have all the funds flow to the LLC bank account, titled in the LLC name and make sure, you get the deed to the rental property titled in the name of the LLC. One final note is then you will want to make sure your, if you have the umbrella insurance, property insurance is all titled in the LLC as well and remember, because you have a LLC business entity, any cost, the filing fee, attorney’s fees, to set it up etc. are deductible as a business expense on the LLC's schedule C or Form 1065, if you have to file that. Their deductible as a business expense on there. So again, I hope this first video in limited liability companies 101 is useful to you. This is a common topic come up how to put rental property into the LLC and it's going to be of primary importance, your first step you want to do when you're getting that rental property, to get it inside the LLC, to maintain that limited liability protection.

So thanks for watching, I hope this video is useful to you. If you have suggestions on future topics you'd like to see covered in this series, drop them in the comments below and if it's been helpful, consider giving us a like and subscribe, so more people can see the channel and get this information. Thanks for watching and we'll see you next time.

© 2022 Burton Law LLC. All Rights Reserved. Transcript and captions provided for ease of access for the hearing impaired. For questions about this topic, or to suggest a topic for a future blog post, please contact the office.


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