Create a Rental Property LLC in North Carolina

Steps to Create a North Carolina Rental Property LLC

LLCs offer so many benefits and are often the preferred choice for real estate investors. So how do you form a North Carolina real estate LLC? Let us do it! Here are the eight simple steps to creating an LLC for rental property. 

What to know before creating a rental property LLC in North Carolina

Before diving right into how to set up a real estate LLC in North Carolina, it’s important to understand the benefits of an LLC. This type of business structure might not work for all real estate investors. We want you to choose an entity type that’s right for you and your goals.

Benefits of creating LLCs for rental properties in North Carolina

Liability Protection

LLCs limit your personal liability because they’re their own separate, legal entity. An LLC provides a safety net around your personal assets and protects them from debts or lawsuits of the LLC. 

For example, if a tenant is injured on your property, they may file a lawsuit to financially recover damages. When the LLC owns the property, only the LLC can be sued, not you individually. This means that only the LLC’s assets can be used to satisfy the legal judgment. Your personal assets, like bank accounts and other real estate owned by you, are protected. 

Similarly, if a creditor goes after the LLC for an unpaid debt, your personal assets are untouchable. Only the LLC’s assets can be collected to satisfy the financial obligation. 

Pass-Through Taxation

LLCs offer substantial tax benefits, most notably, pass-through taxation. When you form an LLC for rental property in North Carolina, the LLC is not taxed directly. Rather, you, as the owner, report the LLC’s profits and losses on your personal tax return. The rental income is subject to tax only once, meaning more money in your pocket. 

Separation of Business and Personal Property

By creating an LLC, you can keep your business and personal assets separate. If you commingle the two, it’s possible for creditors or legal claimants to go after your personal property. 

Since an LLC is a separate legal entity, it can have its own bank account, credit card, insurance, etc. It’s important for the LLC to have these, so you can protect what you own as an individual. Keeping everything separate also makes it easier for accounting and tax purposes.

Series LLCs

A series LLC is a type of business structure that allows you to create mini-LLCs within your main LLC. Think of it as a corporation with subsidiaries. Each series has its own membership interests, assets, and records, and liability is limited to each series. 

For real estate investors with multiple rental properties, a series LLC can offer additional protections. Forming a series LLC is much cheaper and quicker than setting up a new LLC for each rental property. 

North Carolina doesn’t recognize series LLCs, but you may end up owning property in a state that does. 

Who should form a North Carolina LLC for their rental property?

You don’t have to be a real estate tycoon to form an LLC. Forming a North Carolina real estate LLC is a good idea for anyone who wants to rent properties for vacation or residential purposes. 

Keep in mind, it’s much easier to form your LLC first and then buy rental properties. This avoids having to retitle the property in the name of the LLC and possibly pay the real estate transfer tax. 

Lastly, record the new deed with the Register of Deeds in the county where the property is located. North Carolina also imposes an excise tax on the transfer of real property. 

Inform your lender

If the property is subject to a mortgage or loan, make sure you notify the lender that the property is changing ownership. This may impact your loan rates, but that’s something you can discuss with the lender. 

Update rental or lease agreements

Be sure to update your rental or lease agreements to reflect the change in ownership. If you have tenants or renters currently in place, you also want to inform them that the property is now owned by an LLC.