If you’re wondering how to structure your Orlando property investments to maximize your earnings and minimize your risk, we want to talk with you about the options. 

We aren’t attorneys and we aren’t accountants. While we know a lot about this as professional property managers in Orlando, we always recommend that you talk to your CPA or your financial advisor before you do anything in terms of business structuring. 

Many of the investors we work with put their real estate into a Limited Liability Company, or an LLC. Others prefer to keep their rental properties in their own name. 

Let’s take a look at the pros and cons of each of those options, as well as other considerations that you might not have thought about.

Orlando Investment Property and LLCs

A limited liability company (LLC), is a type of business structure that is essentially both a corporation and a partnership. Like a corporation, an LLC will provide you with limited liability in the event the business fails or runs into trouble. Like a partnership, LLCs “pass-through” their profits so that they are taxed as part of the owners’ personal income.

Those are the two most advantageous reasons for using an LLC: 

• You won’t be held personally responsible for the debts of the company. If the company goes bankrupt or is sued, your personal assets cannot be pursued.
• You won’t have to worry about double taxation because all profits are taxed as personal income. 

Depending on where you are in your life and your real estate investment career, putting your property into an LLC can provide better protection and less risk. Here’s why it works so well for many Orlando investors. 

1. You’re Personally Protected from Lawsuits and Claims

The primary reason to buy and hold your investment in an LLC is that it protects you from liability and lawsuits. No one likes to imagine the worst case scenario, but what will happen if a roof collapses and injures a tenant? What if a tenant’s guest drowns in your swimming pool? Suppose a loose handrail causes a tenant to fall down the stairs. 

There’s liability insurance for you and, if you require it, renter’s insurance for your tenant to protect you. But, as the property owner, you will be the target of any lawsuits or insurance claims. You don’t want to see your personal funds at risk.

When you own the property in your own name, you and all of your assets are fair game in those lawsuits. But, when an LLC owns your property, your personal liability is limited. Claimants and plaintiffs cannot come after your personal finances or assets in a lawsuit. They’d be suing the LLC. They won’t be suing you.

2. An LLC Separates Business and Personal Interests

A lot of people, even experienced investors, can become emotionally attached to a property. You can think of it as your own, even while other people pay to live there. But when you decide to rent out an Orlando property, you’re essentially opening and running a business. You need to think about that rental property as a business which produces income. 

When you’re making decisions and plans, you’re doing so from a business perspective, not a personal or emotional perspective. It’s important to keep these interests separate. 

This is another excellent reason to put your property or properties into an LLC. Your business interests and assets are separate from your personal interests and assets. If there’s a lawsuit, no one can come after you and the home you’re living in. Only the LLC owns the rental property. 

Keeping Orlando Rental Homes in your Name

Maybe you don’t want to go through the process of structuring an LLC. 

If you have a lot of protections in place already, maybe you don’t need to. Here are some other reasons that you might want to avoid an LLC:

• An LLC may affect your financing. When buying an Orlando investment property in an LLC, you may not qualify for the most favorable loan terms as compared to acquiring it in your individual name. Buying the property in your own name could mean a cheaper loan and one that’s easier to qualify for. 
• Maybe you’ll buy the property as an individual but then convert it to an LLC after you close on the deal. Well, that could violate the terms of your loan documents, allowing the bank to call the loan once they discover the change in ownership. Talk to your lender, an attorney, and a CPA before making this move.

Be careful about transferring any real estate that is held in your own individual name to an LLC. If an individual initially secured financing and qualified for a mortgage for the real estate, the individual’s name will appear on the mortgage documents as the legal owner of record.

It’s also important to make sure that transferring your property into an LLC will not invalidate any insurance coverage on the property. If the existing policy is in your individual name, it’s important to communicate the change to the insurance advisor so that the policy can either be updated or a new one put in place. You don’t want to find a claim denied because you neglected to make this change.

Additional Questions While Structuring a Rental Property Business

Many owners wonder if each property they own should be in a separate LLC. This is a good question and an excellent way to provide additional protection to your portfolio of assets. But, the answer really depends on your own unique financial and investment situation, and the amount of equity you have in each property. You also need to consider your own personal tolerance for risk. 

While putting every single rental property in its own LLC may be the best way to protect your assets, you’ll have to consider the fees and annual registration costs for each limited liability company that you own. 

Depending on the size of your portfolio and your investment goals, you can also form Corporations or Limited Partnerships, which are different from an LLC. You can put your rental properties into a trust as well. 

Setting Up an LLC in Orlando

If you decide that an LLC is the best way to go, there are some simple steps for creating your company in Florida. Here’s what to do:

• Name your LLC. You’ll need a name for the company that holds each rental property or your entire portfolio of rental properties. Note that the business name actually needs to include LLC or Limited Liability Company. 
• Choose a registered agent for your LLC. This is the person authorized to receive service of process or other authorized and legal documents on behalf of the LLC. This might be you or your Orlando property manager. 
• File Articles of Organization. This establishes some basic information about your business, including who you are, where you operate, and what kind of business you are.

Once you’ve completed these steps and submitted the necessary paperwork, you’ll receive a Certificate from the state, documenting the existence of your LLC. 

This certificate will allow the LLC to obtain an Employer Identification Number (EIN), business licenses, and business bank account.

Next, you’ll obtain your business license, which is required for LLCs in Florida. You can also open a business bank account, which is where you’re likely to hold security deposits and collect rent. An LLC has to have an open bank account in the state in order to be operating a business. 

The filing fee for an LLC in Orlando is $125. Then, you’ll pay a registration fee every year (currently around $138). You’ll also be responsible for submitting quarterly taxes. 

Protecting Your Identity with an LLC

Another great reason to operate within an LLC when you have rental real estate is that you can protect your identity. No one has to know who owns your property when the LLC is listed as the property owner. This can protect you from a disgruntled tenant who may want to complain. It can also keep you unnamed online and in tax records. 

Many rental property owners prefer this anonymity. It’s why you work with an Orlando property manager; so you don’t have to be the one signing the lease agreement, talking with your tenants, and responding to every question or complaint they may have. 

Talk to your tax and accounting professionals as well as a lawyer if you have a lot of assets and you’re wondering how to best protect them. An LLC makes sense for a lot of reasons, but there may be an argument for remaining a sole proprietorship, putting the property in a trust, or starting a corporation.

We can help you work through the options before you talk to your financial planner. Please contact us at Homevest Management.

We provide expert Orlando property management, real estate, property rentals, and HOA management, serving all of Central Florida, including Winter Garden, Doctor Phillips, Baldwin Park, Winter Springs, and Windermere.