Legal Question in Real Estate Law in California

Re: Is a LLC advisable for a rental property

An LLC or a limited partnership is usually a good idea for asset protection purposes, among others. Consult with an attorney regarding income and tax issues, and the costs and formalities associated with each of the entities, as the asset protection is only there if you follow the rules every year (treating the entity as separate from your other assets, holding the required meetings and giving the required notices, insuring the assets separately and accounting for income/expenses separately).

Re: Is a LLC advisable for a rental property

There are tradeoffs that make the decision fairly personal.

For example, the LLC may protect the owners' other assets from suits with respect to the LLC's income property, but it doesn't prevent loss of the equity in the property itself. Therefore, adequate insurance may be a better means of protection. On the other hand, liability insurance may not cover intentional wrongs or punitive damages, but even the LLC protection might break down.

Another factor to consider is the LLC franchise tax, which is based on the LLC's revenues. For some types of business, this fee is a major consideration.

LLCs are useful where there is diverse ownership and several investors may participate in management, because the management and control rights can be customized. They also offer tax advantages (over, say, S corporations) where the owners engage in certain kinds of borrowing or loan guarantees on behalf of the LLC -- e.g. highly leveraged real estate or farming deals.

So, it's about 1/2 a matter of tax and fee considerations, and 1/2 choice of method to limit personal liability. These are situation-specific and owner-preference specific and no recipe can be given that fits all situations.

Your Zip code suggests you are right down the road from me, and I'd be pleased to give you a free consultation if you wish.