If you’re a real estate investor, landlord, or just dipping your toes into rental property ownership, you’ve probably heard that forming an LLC is one of the smartest ways to protect your personal assets. But how exactly do you do it—and do it right?

Here’s a clear, three-step guide to setting up an LLC for your rental property. This structure isn’t just legal paperwork—it’s your first line of defense against lawsuits, hidden liabilities, and threats to your personal wealth.

Need a walkthrough you can follow along with? Watch the full video guide here on YouTube.

How To Start An LLC for Real Estate  Investing

• Step 1: Form the LLC in the same state where the rental property is located.
  
• Step 2: File with the state, get an EIN from the IRS, and notify all relevant parties.
  
• Step 3: Operate your LLC like a business—create an operating agreement, open a separate bank account, and maintain compliance.

These steps may sound simple, but missing even one can put your personal assets at risk. Let’s break each one down in detail so you can do this the right way.

Why Use an LLC for Real Estate?

Before we dive into the steps, let’s discuss why an LLC matters when you are investing in real estate.

Let’s say you’re a surgeon in California and buy a rental property in the Midwest for $100,000. If something goes wrong—like a tenant getting injured in a fire—the liability can extend far beyond the property itself. Without legal protection, you could be personally sued, putting your savings, wages, and other assets at risk.

A limited liability company (LLC) acts like a box that traps liability inside. The plaintiff may go after the LLC and its assets, but not your personal bank account. That’s the power of asset protection.

Bonus Tip: Own multiple properties? If you’re investing in more than one rental property, consider using separate LLCs for each property or creating a Wyoming holding company to own all your individual LLCs. This structure creates legal separation between each asset—so if one property faces a lawsuit or financial issue, the others stay protected. It’s a smart way to isolate risk and preserve your overall real estate portfolio.

Step 1: Choose the Right State

LLCs are governed by state law, not federal law. So your first decision is where to form it.

Here’s the rule of thumb: Set up your real estate LLC in the same state where the property is located.

Sure, you might hear about the benefits of states like Wyoming or Nevada. And yes, we will use those, but as holding companies or for multi-property strategies. If your investment property is in Indiana, your LLC should be too.

Forming an LLC in a different state and “foreign filing” it into the property’s state just creates unnecessary costs and paperwork without offering added protection.

That said, if you’re building a portfolio or you’re in a high-liability profession like medicine or law, you will want to use a Wyoming holding company to own your local LLCs. 

Step 2: Form the LLC and Notify the Right Parties

Once you’ve chosen your state, it’s time to officially form your LLC.

Here’s what that looks like:

1. File with the Secretary of State
   This is your “insurance policy” against personal liability. You pay a filing fee, submit your formation documents, and gain the protections granted under that state’s LLC laws.
   
2. Get Your EIN (Employer Identification Number)
   Even if your LLC just has one business owner (you), the IRS still needs to know it exists. You’ll apply for an EIN and declare how the LLC should be taxed:
   

• Single owner? It’s disregarded (taxed like you).
• Married in a community property state? Still disregarded.
• Married in a separate property state? Might need to be treated as a partnership.
  

Uncertain about the right structure? Book a free Strategy Session with one of our Senior Advisors—we’ll help you navigate the best setup based on your goals, risk profile, and investment strategy.

Step 3: Maintain the LLC Properly

Here’s where most people get tripped up. They think just filing paperwork to create an LLC is enough. It’s not.

To benefit from the asset protection an LLC is known for, it has to function like a real business entity—not a hobby. If you treat it casually, the courts can pierce the corporate veil, essentially treating it like a sole proprietorship. That puts your personal savings, home, or even retirement accounts on the line in the event of legal issues like tenant disputes or injuries.

Even if you’ve got liability insurance, that policy may not cover every scenario—and claims can easily exceed your coverage limits. An LLC steps in as a second layer of protection when insurance falls short.

Another benefit? Pass-through taxation. Most rental LLCs don’t pay corporate taxes. Instead, profits flow through to your personal tax return, helping you avoid double taxation while still accessing business-level tax benefits like write-offs for repairs, depreciation, and mileage.

And if you’re thinking long-term, the LLC can play a role in estate planning too—helping you pass properties to your heirs without probate or title issues.

Pro Tip: If you’re financing your property, the lender might ask for a personal guarantee—which means you’re still on the hook for the loan personally. But that doesn’t erase the value of the LLC for limiting liability in other areas.

Lastly, whether you self-manage or use a property management company, make sure the LLC is listed on all leases, contracts, and financial accounts. The more consistently you operate through the LLC, the more protection it provides.

How Can You Make Sure Your LLC Holds Up In Court?

• Create an Operating Agreement
  Even if you’re the sole owner, you need a document that outlines how the LLC runs. This gives the company a legal identity and business structure.
  
• Set Up Books and Records
  Maintain a clear paper trail:
• Separate bank accounts
• Profit & loss statements
• Balance sheets
• Expense tracking

Do not mix personal and rental expenses. Using the same account for groceries and property repairs? That’s a red flag. You must separate your rental income from personal finances. 

• Maintain Annual Compliance
  This includes:
• Renewing your LLC annually with the state (if required)
• Keeping your manager or member info updated
• Filing any necessary reports

The court will respect your LLC as much as you do. Treat it like a business, and it will protect you like one.

Bonus: What About Transferring the Property?

Once you’ve set up your limited liability company for real estate, you’ll want to transfer ownership of your rental property into it. But watch out for taxes and fees.

• In some counties (like Clark County, NV), you can transfer property into an LLC tax-free.
  
• In others (like Florida or Pennsylvania), transferring property triggers doc stamp fees or transfer taxes.
  

Solution? In tricky states, we sometimes use a land trust to hold the title, with the LLC as the beneficiary. It can provide liability protection and avoid taxes.

Again, this is where a little expert advice goes a long way—especially when navigating title transfers without compromising your LLC’s asset protection benefits.

Ready to Get Started?

You don’t have to go it alone. Whether you’re protecting one rental property or building a real estate empire, Anderson Advisors has been helping to create asset protection for real estate investors for over 25 years.

Book your free 45-minute Strategy Session today with one of our Senior Advisors to map out the best approach for your real estate investments.

Final Thoughts

Setting up an LLC isn’t just about checking boxes—it’s about protecting everything you’ve worked for. When done right, your LLC becomes a legal wall between your rental activities and your personal life.

Waiting for a problem isn’t a strategy—it’s a risk. Whether you’re just starting out or scaling up, we’ll help you get protected the right way. Access our free resources or let us build the full structure for you, start to finish.