Discover the benefits of setting up a Rental Property LLC in Illinois for your real estate investments. Learn how this structure can protect your assets and provide tax advantages, offering peace of mind to landlords and investors. There are a few entity types you can use to set up a rental property business in Illinois, but the most popular choice is setting the business up as a limited liability company (LLC).
The decision to buy and rent property as an investment can be an excellent source of secondary income and a bedrock investment in your family’s future. However, entering the rental property world and taking on the responsibilities of a landlord is much easier if you do things correctly right from the start. In this guide, we go through the benefits of placing your rental property into a business structure, such as a limited liability company (LLC).
Setting up an LLC is advantageous for many reasons. Not only are they easy to create, but the liability protection, tax benefits, and flexibility in management style make them a great option for real estate investors. We can help you form a rental property LLC in Hawaii today, and after formation, our other products and services can help make running your rental property business as smooth as possible.
If you’re ready to create an Illinois LLC, we’re here to guide you through the process. We can even set up your LLC for you with our LLC formation service. Here are the steps.
When selecting a name for your LLC, be sure to choose one that meets Illinois’s requirements. We can do a search for you to see if the business name you want is available. If it is, let us reserve the name while you get the filing paperwork together.
Businesses in Illinois are required to appoint a registered agent. This person is responsible for receiving important documents on behalf of the LLC, such as state correspondence and legal notices. If you need an Illinois registered agent, we can help you find one.
To officially form your rental property LLC in Illinois, you need to file a Certificate of Organization with the Secretary of State and include the appropriate filing fee. With our LLC Formation Service, we can file your documents for you.
Your LLC’s Operating Agreement is one of your most important business documents. It governs how your LLC runs and provides instructions for anything from voting procedures to dissolving the company. If you’re not sure how to create an Operating Agreement, we offer templates that can serve as a guide.
The IRS assigns businesses a nine-digit EIN that is used to identify their enterprise. An EIN is like a social security number for your LLC. Having one is necessary for certain business matters, such as opening a business bank account, hiring employees, and getting financing.
You can apply for an EIN yourself on the IRS’s website, or we can do it for you with our EIN service.
If you purchased a property in your individual name prior to forming the LLC, you’ll need to transfer the title of the property to the LLC. The new deed transferring ownership has to be filed with the county clerk’s office where the property is located.
If you have a mortgage on the property, check with your mortgage company to make sure that the transfer won’t affect the mortgage. Then make sure that the mortgage company drafts the proper documents to name the LLC as the new borrower (note that the transfer may also trigger new loan terms and an adjustment of the loan rate).
Finally, if you have tenants and a lease in place, you’ll need to make all of the proper amendments to the lease. It’s also a good idea to inform your tenants of the new owner.
Before you create your rental property LLC in Illinois, let’s go over the three general benefits of a limited liability company. First, it grants limited liability protection to its owners (i.e., “members”) from personal liability. Second, it provides pass-through taxation, meaning any income is taxed at the member’s personal income tax rate rather than the state corporate tax rate. Third, if used properly, LLCs make a bright-line distinction between what property it owns and what property is owned by their members.
Along with these three benefits, Illinois also offers a “series LLC.” For rental property, this means that you have a “master LLC” that owns several other LLCs; and each of these LLCs owns a rental property.
The purpose of a series LLC is twofold. The first is to attract investors. Series LLCs do this by offering ownership in the master LLC, which in turn can grant indirect ownership of each of the subsidiary LLCs in the series.
The second benefit is, if an event arises in one of the subsidiary LLCs (e.g., a tenant is injured), that event should be legally isolated from all of the other subsidiary LLCs and the master LLC.
Separating investment property from personal assets is always a good idea. It’s even a better idea if you are planning on owning more than one rental property, or if you have any plans to make this a larger business venture. In those cases, we strongly suggest you form an Illinois rental property LLC rather than owning it as a sole proprietorship.
If you decide to establish an Illinois rental property LLC, then it’s important that you form the LLC before you begin to look for a potential rental property to buy. You want to do this because real estate transactions focus heavily on the identity of the buyer, and they do this for two reasons. The first reason is for financing purposes. The identity of the buyer influences which types of loans may be approved for purchase, how much they may finance, interest rates, and loan terms. Second, the deed to the real property must name the correct owner, which is the buyer on the real estate contract, and the borrower of financing.
Additionally, if you buy the rental property in your name and later decide to transfer it to an LLC, this will create a lot of extra work. For starters, transferring the property from your name to an LLC could complicate or terminate any financing for the property. You’ll also have to transfer the ownership on the local land records by filing a new deed. As a last consideration, a transfer of the property may trigger an unwelcome tax event.
We have a whole host of services to help you form your Illinois rental property LLC. We also offer our Worry-Free Compliance Service to help you stay in compliance, and Accounting Services to help you maintain accurate records. Contact us to see how easy it is for you to take this next step in rental property ownership.
By creating an LLC, you’ll protect your personal assets from liability, you can treat the rental income as pass-through income on your personal income tax return, and you can more easily manage a portfolio of rental property.
Usually, people name their rental property LLC with the street or address of the actual property (e.g., 4357 Sullivan Street, LLC), but any name that abides by the state’s LLC naming rules is acceptable.
Yes. Any foreign LLC almost always needs to register to do business in another state, and owning rental property is usually considered doing business. Check your home state’s Secretary of State website for further information.
Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
Illinois Business Resources
Start a Rental Property LLC in Your State
Ready to Start Your LLC?