How to Start an LLC for Real Estate Investing

Why you need an LLC for this

• Each property in its own LLC = one lawsuit can only reach one property
• Cleaner capital partner setups (a partner can buy into one property's LLC, not your whole portfolio)
• Pass-through taxation preserves depreciation deductions and 1031 exchange treatment
• Easier estate planning — LLCs transfer faster than deeds

The tax angle

Most investors keep rental LLCs as pass-throughs and never elect S-corp — passive rental income shouldn't be S-corp taxed because the IRS treats it as passive anyway. Flippers, though, often run flips through a separate S-corp LLC to manage SE tax on the active income.

Step-by-step

1. Step 1
   Pick a state to form in

   For most investor owners, your home state is the right answer. Forming in Delaware or Wyoming sounds clever, but if you operate from another state you'll have to register as a foreign LLC there too — double the fees and paperwork.

2. Step 2
   Name your LLC

   Search your state's business database to make sure the name is available. It must include 'LLC' or 'Limited Liability Company.' Avoid restricted words (Bank, Insurance, etc.) unless you have the right licenses.

3. Step 3
   File your Articles of Organization

   This is the legal document that creates your LLC. Filing fees range from $40 to $500 depending on the state. Most states process online filings within a few business days.

4. Step 4
   Get an EIN from the IRS

   Free at IRS.gov. Takes 5 minutes. You need it to open a business bank account, hire employees, and file taxes.

5. Step 5
   Open a business bank account

   Critical for the liability shield. The moment you mix personal and business money, a lawyer can argue your LLC is a sham and pierce the veil. Keep it separate from day one.

6. Step 6
   Decide on series LLC vs separate LLCs

   A series LLC (available in TX, DE, NV, and others) lets you have one parent LLC with multiple 'series' inside, each isolating one property. Cheaper than 10 separate LLCs but legally untested in some states.

7. Step 7
   Skip all of that and use Tailor Brands

   Tailor Brands files your Articles of Organization, gets your EIN, sets up your registered agent, and drafts your operating agreement in one flow. Most people finish in under 15 minutes. If you'd rather not deal with state websites, this is the fastest path.

What people get wrong

• Holding 10 properties in one LLC — defeats the entire purpose
• Not getting written lender approval before transferring deed
• Mixing flip income (active) and rental income (passive) in the same LLC and creating a tax mess

FAQ