The right entity structure protects your assets, minimizes taxes, and keeps financing available. The wrong one costs you rate, exposes personal assets, or triggers ugly tax bills.
Rentals — the default
Hold each property (or small portfolio) in an LLC. Reasons:
- Liability protection from tenant lawsuits.
- Compartmentalizes risk between properties.
- DSCR loans close directly in LLC (unlike conventional).
Pass-through taxation — the LLC files an informational return; profits flow to your personal 1040 via Schedule E.
Active RE business — S-corp election
Flipping, wholesaling, agent commissions? These are active income subject to self-employment tax (15.3% on top of income tax).
An S-corp election lets you:
- Pay yourself a reasonable W-2 salary (SE tax on that).
- Take the rest as distributions (no SE tax).
Rule of thumb: worth electing at ~$50k+ of active RE income.
Do not put rentals in an S-corp. Passive rental income has no SE tax to save, and moving property out later triggers taxable events.
The holding-company pattern
Common structure for portfolios of 5+ properties:
You (personal)
↓
Wyoming Holding LLC (privacy + management)
↓
Property LLC 1 Property LLC 2 Property LLC 3
Each property LLC is disregarded (single-member) and rolls up to the holding LLC. The holding LLC files one return.
Benefits: anonymity in some states, cleaner tax filing, single point of asset management, easier to add partners at the holding level.
Series LLC — powerful but tricky
A Series LLC (TX, DE, IL, NV, TN, WY, and others) creates internal "series" — each with its own liability shield — without filing separate LLCs.
Pros: file once, pay one franchise fee.
Cons: legally untested outside of enacting states; some lenders won't finance them; if you cross state lines the shield weakens.
Land trust + LLC
A land trust takes title publicly. Beneficial interest is held by an LLC (which owns you privately). Extra layer of anonymity; not a substitute for the LLC.
Costs to budget
| Item | Cost |
|---|---|
| LLC filing (per state) | $50–500 |
| Annual state franchise/report | $0–800 |
| Registered agent | $100–150/yr |
| Operating agreement | $500–2,000 with attorney |
| Bookkeeping | $50–300/property/month |
What lenders care about
- Entity age can affect DSCR pricing (some programs prefer 6+ months old).
- Multi-member LLCs sometimes trigger stricter guidelines.
- The LLC name must match the deed, the insurance binder, and the loan docs.
Not legal advice
Structure decisions have real tax and legal consequences. Use a real estate attorney and CPA — a $2,000 setup can save $50,000 in problems.