Lawrence R. Jensen & Associates
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Can forming an LLC really limit your liability as a landlord?

As with running any business, renting property as a landlord inherently exposes you to a certain level of risk. Right or wrong, our current society has become increasingly litigious. This means that everyone has to be more aware of issues surrounding liability to better protect themselves.

Landlords may be attracted to forming an LLC for a great variety of reasons. One of which may be the possibility of insulating themselves from liability risks. However, there are many factors at play when it comes to this topic.

Putting the "limited" in limited liability

One of the main benefits of forming an LLC for your rental properties is that it creates a barrier between your rental property and your personal assets. This, theoretically, should limit your personal liability in case of an accident.

However, this protection is not air-tight. You will need to be diligent in making sure that you do not mix your personal finances with those of the LLC, otherwise, someone may claim that your finances and that of your LLC really aren't that separate.

Mixing your personal finances with that of your LLC can take many forms. An obvious example of this is using your LLC bank account to go on shopping spree. However, the misuse of these accounts can go the opposite direction, like if you used your personal account to pay for an electrician to do some work on the property. Being sure that your LLC account can cover for all of the expenses associated with your property is an important step if you are considering this option for liability protection.

Furthermore, if an injury were to occur due to personal negligence (i.e. not complying with housing safety standards or leaving a ladder out that falls on someone) you still may be liable personally.

There are many considerations when it comes to forming LLC's for rental properties including but not limited to:

  • Costs associated with forming a LLC
  • Ongoing costs of maintaining an LLC
  • Forming multiple LLC's for multiple properties
  • Limitations of transferring mortgages to an LLC

As with all aspects of the law, liability is complicated and varied depending on a great number of factors. Be sure to contact the appropriate professionals for proper guidance on how best to protect yourself and your assets in your case.

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Lawrence R. Jensen & Associates
95 S. Market St.
Ste. 550
San Jose, CA 95113

Phone: 408-465-0293
Fax: 408-899-2403
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