RENT Magazine Q3 '22

What are the most common pitfalls that should be avoided in creating an LLC for a rental property? Below are 11 common mistakes which may result in the LLC not providing liability protection to the owners, obstacles to collecting rent, and real estate title issues.

1. Not transferring existing property by deed to the LLC. If the LLC purchases property, the LLC should be listed as the purchaser in the purchase contract and deed. 2. Not forming a separate LLC for each property or forming a Series LLC. 3. Not insuring the property in the name of the LLC with a comprehensive landlord’s property insurance policy. 4. Not filing state biennial registration statements to keep the LLC in good standing. 5. Not verifying with the bank or mortgage company that the mortgage will not be called due for transferring the property to the LLC. 6. Not applying for authority to do business in

each state that the LLC owns property. If the LLC owns property in a state other than the state where it was formed, an application for authority to do business must be obtained to have a good title and the ability to evict and sue tenants. 7. Not assigning current leases to the LLC or drafting new leases in the name of the LLC. 8. Not obtaining a federal Employer Identification number and bank accounts in the name of the LLC. 9. Not drafting an LLC Operating Agreement. 10.Not publishing legal notice of the formation of the LLC in the newspaper. 11. Not making the LLC part of your estate, tax, and succession plan.

This is general information that does not apply to all states. For proper formation of your LLC and preparation of deeds, consult with an attorney in the state where the rental property is located.

Robert Friedman, Esq. Attorney Friedman & Ranzenhofer, PC (716) 542-5444


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