By Jake Lawson, LLC Formation Strategist
Short answer: For most real estate investors, yes—especially for your first 10 properties.
After 15 years helping over 1,200 entrepreneurs structure their businesses (including plenty of real estate investors), I’ve learned that the “one LLC per property” strategy is usually the smartest approach for building wealth while protecting what you’ve already earned.
Here’s the reality: real estate investing creates enormous liability exposure. Slip-and-fall lawsuits, tenant disputes, property damage claims, discrimination allegations—any one of these can wipe out years of wealth building if you’re not properly protected.
But here’s what most real estate gurus won’t tell you: the way you structure your LLCs can be the difference between losing one property and losing your entire portfolio.
The Asset Protection Logic: Why Separation Matters
Let me paint you a scenario that happens more often than you’d think:
You own three rental properties. Property #1 has a tenant who slips on an icy sidewalk and breaks their leg. They sue for $200,000 in medical bills and lost wages.
If all three properties are owned by one LLC, that lawsuit can potentially reach the assets of all three properties.
If each property is owned by a separate LLC, only Property #1’s assets are at risk. Properties #2 and #3 remain completely protected.
This isn’t theoretical—I’ve seen investors lose multiple properties because they tried to save money on LLC fees and put everything under one entity.
The Financial Management Advantage (That Nobody Talks About)
Beyond asset protection, separate LLCs create something even more valuable for growing your portfolio: crystal-clear financial tracking.
When each property has its own:
- LLC entity
- EIN number
- Business bank account
- Insurance policy
- Bookkeeping system
You can instantly see which properties are profitable and which are draining your cash flow. Try doing that when you have five properties mixed together in one LLC’s bank account.
This clarity becomes crucial when you’re:
- Deciding which properties to sell or refinance
- Calculating individual property ROI
- Preparing for tax season
- Making investment decisions for future acquisitions
The Exit Strategy Secret: Selling LLCs vs. Selling Properties
Here’s an advanced strategy most investors don’t know about: when you’re ready to sell a property, you can potentially sell the entire LLC instead of just the real estate.
Why this matters:
- May avoid transfer taxes and recording fees
- Can streamline the closing process
- Potentially more attractive to certain buyers
- Maintains privacy in public records
Important caveat: This strategy requires proper legal guidance and isn’t suitable for all situations. You’ll need an experienced real estate attorney to structure this correctly.
The Magic Number: When to Stop Creating Individual LLCs
Based on my experience with real estate investors, here’s how I think about the numbers:
1-10 Properties: Individual LLCs
This is the sweet spot. The administrative burden is manageable, and the protection benefits are enormous. Each property gets its own LLC, bank account, and insurance policy.
11+ Properties: Time for Advanced Strategies
Once you’re managing 15+ LLCs, the administrative complexity can become overwhelming. This is when you should consider:
- Grouping strategies: 2-3 similar properties per LLC
- Series LLCs: Available in some states, allows multiple “series” under one LLC
- Holding company structures: Parent LLC owns multiple property LLCs
- Professional management: Hire property management and accounting firms
The State-by-State Cost Analysis
Before you decide on your LLC strategy, you need to understand the real costs involved. Here are the key considerations:
Low-Cost States (Great for Multiple LLCs):
- Wyoming: $50 filing + $50 annual = $100/year per LLC
- Arkansas: $50 filing + $150 annual = $200/year per LLC
- Colorado: $50 filing + $10 annual = $60/year per LLC
- Florida: $100 filing + $138.75 annual = $238.75/year per LLC
Moderate-Cost States:
- Texas: $300 filing + $0 annual (but must file Public Information Report)
- New York: $200 filing + $9 annual = $209/year per LLC
- Illinois: $150 filing + $75 annual = $225/year per LLC
High-Cost States (Consider Grouping Strategies):
- California: $70 filing + $800 annual = $870/year per LLC
- Massachusetts: $500 filing + $500 annual = $1,000/year per LLC
Reality check: Even in expensive states like California, you’re paying $870/year to protect a property worth hundreds of thousands of dollars. That’s cheap insurance.
The Financing Reality: What Banks Don’t Want You to Know
Here’s where things get complicated, and most real estate education glosses over these details:
Commercial Loan Requirements
When your LLC gets a mortgage, banks typically classify it as a commercial loan, even for residential rental properties. This means:
- Higher interest rates (usually 0.25-1% above residential rates)
- Larger down payments (typically 20-25% minimum)
- Shorter amortization periods
- More stringent qualification requirements
Personal Guarantees (The Protection Limitation)
Most banks will require you to personally guarantee LLC loans anyway. This means if the LLC defaults, they can still come after your personal assets.
Does this eliminate the LLC protection? No. The LLC still protects you from tenant lawsuits, property liability, and other non-lending related issues.
The Lending Limit Loophole
Here’s a strategy most investors don’t know: conventionally, you can only have 4 mortgages in your personal name. But LLCs don’t count toward this limit.
This means you could theoretically have unlimited LLC mortgages while still qualifying as a “first-time homebuyer” for your personal residence. Each LLC is treated as a separate borrowing entity.
Advanced Structuring Strategies for Serious Investors
Once you’re managing significant real estate wealth, consider these advanced approaches:
The Holding Company Structure
Create a master LLC that owns all your property LLCs. Benefits:
- Simplified tax filings (one consolidated return)
- Enhanced asset protection (extra layer between you and properties)
- Estate planning advantages
- Easier management of multiple entities
Asset Class Separation
Group properties by risk level and type:
- Low-income properties LLC: Higher liability risk properties grouped together
- Commercial properties LLC: Different liability profile from residential
- Vacation rental LLC: Short-term rentals have unique risks
- Fix-and-flip LLC: Active business separate from buy-and-hold investments
Geographic Separation
If you invest in multiple states:
- Form LLCs in each state where you own property
- Use holding company structure to manage out-of-state compliance
- Consider professional registered agent services for states where you don’t live
The Administrative Reality: What Nobody Tells You
Managing multiple LLCs isn’t just about protection—it’s about operational efficiency. Here’s what you’re signing up for:
Required for Each LLC:
- Annual state filings and fees
- Separate business bank accounts
- Individual insurance policies
- Distinct bookkeeping systems
- EIN numbers and tax considerations
Professional Help You’ll Need:
- Accountant: For tax filings and financial planning
- Attorney: For formation and ongoing compliance
- Insurance agent: To properly structure coverage
- Property manager: To handle day-to-day operations
- Bookkeeper: To maintain clean financial records
Cost estimate: Budget $200-500 annually per LLC for professional services, plus state fees.
Common Rental Property LLC Mistakes That Cost Money
After working with hundreds of real estate investors, here are the mistakes I see repeatedly:
Mistake 1: Forming LLCs After Buying Properties
Always form your LLC before closing on the property. Transferring property into an LLC after purchase can trigger:
- Due-on-sale clauses in mortgages
- Transfer taxes and recording fees
- Title insurance complications
- Loan qualification issues
Mistake 2: Mixing Personal and Business Funds
Using personal accounts for LLC expenses or vice versa can “pierce the corporate veil” and eliminate your protection. Keep everything separate.
Mistake 3: Ignoring State Compliance Requirements
Missing annual report deadlines or fees can result in LLC dissolution, leaving your properties unprotected.
Mistake 4: Inadequate Insurance Coverage
LLCs don’t replace the need for comprehensive insurance. You still need:
- Property insurance
- Liability coverage
- Loss of rent insurance
- Umbrella policies for high-value properties
Mistake 5: Poor Entity Management
Failing to maintain proper LLC formalities (operating agreements, meeting minutes, separate bank accounts) can destroy your asset protection.
When Multiple LLCs Might Not Make Sense
While I generally recommend the one-LLC-per-property approach, there are exceptions:
Very Low-Value Properties
If you’re buying properties worth less than $50,000, the annual LLC costs might not justify individual entities. Consider grouping 2-3 low-value properties per LLC.
Family Investment Properties
Properties held for family use or passed down through generations might benefit from different structures, such as family limited partnerships or trusts.
Fix-and-Flip Operations
Active real estate businesses often work better under a single operating LLC, since you’re constantly buying and selling properties.
States with Prohibitive LLC Costs
In states like Massachusetts ($1,000/year per LLC), you need to carefully weigh costs against benefits for lower-value properties.
The Bottom Line: Protection vs. Profits
After 15 years of helping entrepreneurs build wealth while protecting their assets, here’s my take on rental property LLCs:
For your first 10 properties: One LLC per property is usually optimal. The cost is minimal compared to the protection provided, and the financial clarity is invaluable for building your portfolio strategically.
For 10+ properties: Consider advanced strategies like holding companies, grouping by asset class, or Series LLCs (where available).
In all cases: Don’t let LLC costs prevent you from investing. A $200 annual fee to protect a $200,000 property is a bargain. The goal is building wealth, not saving pennies on protection.
Getting Started: Your Action Plan
Ready to structure your rental property investments properly? Here’s your next steps:
For New Investors:
- Form your LLC before making offers on properties
- Open a business bank account for the LLC
- Get proper insurance coverage in the LLC’s name
- Work with a lender experienced in LLC financing
For Existing Investors:
- Assess your current structure’s risk exposure
- Consider transferring properties to individual LLCs (with legal guidance)
- Implement proper bookkeeping systems for each entity
- Review insurance coverage and update beneficiaries
For Growing Portfolios:
- Establish systems for managing multiple entities
- Work with experienced real estate CPAs and attorneys
- Consider advanced structures as your portfolio grows
- Plan for estate planning and wealth transfer strategies
Ready to Protect Your Real Estate Wealth?
Real estate investing is one of the best ways to build long-term wealth, but only if you protect what you’re building. Don’t let a single lawsuit destroy years of smart investment decisions.
The cost of proper LLC structuring is minimal compared to the wealth you’re protecting. Most successful real estate investors I know wish they’d started with proper protection from day one.
Need help structuring LLCs for your rental properties? Check out our state-specific LLC formation guides, or consider working with a professional formation service that understands real estate investing.
Remember: the best time to set up asset protection was yesterday. The second-best time is today, before you need it.
Questions about LLC strategies for your specific real estate situation? After 15 years and over 1,200 business formations, I’ve seen most scenarios. Feel free to reach out—I’m always happy to help real estate investors make smart protection decisions.
Jake Lawson is an LLC Formation Strategist with over 15 years of experience helping entrepreneurs and real estate investors protect their wealth. He’s guided more than 1,200 businesses through formation processes and specializes in asset protection strategies for growing investment portfolios. His insights have been featured in StartupNation, Global Entrepreneurs Network, and FinTech Weekly.