Creating a Rental Property LLC in North Dakota

Benefits of creating a rental property LLC in North Dakota

Before forming an LLC for your rental properties and receiving your rental income, let’s go over the general benefits of an LLC. 

Liability Protection

The most significant benefit of an LLC is the limited liability it extends to its owners (i.e., “members”) and their personal property. LLCs limit personal liability because they’re separate legal entities. An LLC provides a safety net around your personal assets and protects them from debts or lawsuits of the LLC. 

Pass-Through Taxation

Closely following that advantage is the tax benefit of passing through LLC income to its members. This means LLC income is taxed at the member’s personal tax rate and not the corporate tax rate. Finally, an LLC owns its property separate from members’ personal property.

Series LLCs

On top of these benefits, North Dakota recognizes “series LLCs.” A series LLC is comprised of a master LLC and one or more subsidiary LLCs (i.e., the series LLCs). There are two benefits to using a series LLC for rental properties and rental income.

First, real estate investors can easily invest in the rental property venture by simply owning a portion of the master LLC. Second, the effect of any event that might result in liability (e.g., a tenant is injured) is limited in scope because each investment property is owned by a separate LLC.  Therefore, liability shouldn’t bleed over to the master LLC or any other series LLC.

How to form an LLC for your North Dakota rental property

Step 1: Form Your LLC

You can use our LLC Formation Services to quickly create your investment property LLC. Here are the steps:

1. Choose your LLC’s name
2. Select a registered agent
3. File Articles of Organization
4. Create an operating agreement
5. Apply for an Employment Identification Number (EIN)

After taking these steps, or using our LLC Formation Services, you are ready to go with your new LLC. 

Step 2: Transfer Property into Your LLC

On the other hand, if you already own the rental property you’ll need to transfer the ownership of the property through a deed and record that transfer on the land records. You may also need to pay a transfer tax. At the same time check with your lender to make sure that the transfer to the LLC doesn’t breach your loan documents and make sure that your lender makes the proper amendments to reflect the right borrower.

Step 3: Update Rental or Lease Agreements

Once all of the above is complete be sure to inform any rental property tenants of the new owner and landlord. It’s critically important that the tenants direct all communications and payments to the LLC rather than you. To complete this portion of the process, amend any leases to name the LLC as the property management company and property owner.

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

If you want to protect your personal property from liability for your rental property ventures, then you need a rental property LLC in North Dakota. For starters, separating your personal property from business property is sound business judgment. Additionally, forming an LLC to hold investment property allows for smoother growth as you cultivate your business.

With all that being said, we recommend that you consider forming an LLC before buying rental property. Our recommendation is based on two factors. The first is the fact that real estate transactions pivot around the buyer. What that means is the buyer’s identity drives the availability of financing and its amount, rate, and term. Second, the buyer’s name will be on the deed of title and that name must almost always match the name on the financing documents. 

In the event that you already own rental property, you’ll need to take a few steps to transfer it over to the limited liability company. First, check with your lender for the property and make sure that transferring it to the LLC won’t violate the loan agreement. If you can transfer the property, the next step is to record the transfer on the local land records (i.e., county clerk’s office, land record office, etc.) through a deed. Finally, check with your tax professional to make sure that the transfer didn’t cause a taxable event.

How We Can Help

Setting up an LLC is advantageous for many reasons. Not only are they easy to create, but the liability protection, tax benefits, and flexibility in management style make them a great option for real estate investors in North Dakota. We can help you form a rental property LLC today, and after formation, other products like our Worry-Free Compliance Service can help you succeed. No matter what stage you are at, we are here to help.