Creating a Rental Property LLC in Michigan

Benefits of creating LLCs for rental properties in Michigan

Again, you don’t have to set up an LLC for a rental property in Michigan. Doing so may not be for everyone, and it’s true that many people choose not to. However, there are certainly a number of benefits associated with creating a formal rental property LLC in Michigan. 

Some of the most sought-after benefits of setting up a Michigan real estate LLC include:

• Pass-through taxation
• Personal liability protection
• Separation of business and personal property

In certain states, investment property owners may also benefit from the ability to form what’s referred to as a series LLC, which allows you to form a single umbrella LLC entity with multiple separate “series” beneath. This can be useful for real estate investors who want to benefit from personal liability protection for multiple investment properties without the hassle and expense of setting up a separate legal entity for each one.   

Series LLCs

Series LLCs are only allowed in certain states and aren’t currently permitted under Michigan law. However, this may be something to consider for those who own property in states that do permit the formation of series LLCs. 

What to know before creating a rental property LLC in Michigan

When it comes to investment property, setting up a legal business entity can be a great benefit. Doing so isn’t necessarily required. However, failure to go through these legal channels can result in potential legal liability in the future. Thus, before creating a rental property LLC in Michigan, there are a few key things you should know.  

Steps to form an LLC for your Michigan rental property

Here are the steps to form an LLC in Michigan.

Step 1. Name Your Michigan LLC

When selecting a name for your LLC, be sure to choose one that meets Idaho’s requirements. We can do a search for you to see if the business name you want is available. If it is, let us reserve the name while you get the filing paperwork together. 

Step 2. Appoint a Registered Agent

Businesses in Michigan are required to appoint a registered agent. This person is responsible for receiving important documents on behalf of the LLC, such as state correspondence and legal notices. If you need a Michigan registered agent, we can help you find one. 

Step 3. File Michigan Articles of Organization

To officially form your rental property LLC in Michigan, you need to file Articles of Organization with the Secretary of State’s office and include the appropriate filing fee. 

Step 4. Create an Operating Agreement

Your LLC’s Operating Agreement governs how your LLC runs and provides instructions for anything from voting procedures to dissolve the company. If you’re not sure how to create an Operating Agreement, we offer templates that can serve as a guide. 

Step 5. Apply for an Employment Identification Number (EIN)

The IRS assigns businesses a nine-digit EIN that is used to identify their enterprise. Having one is necessary for certain business matters, such as opening a business bank account, hiring employees, and getting financing. 

Step 6: Transfer title of the property to LLC

After you’ve created the legal LLC entity, your next step is to transfer title in the property to the LLC. This is because the LLC will be the legal owner of the real estate. Thus, if you purchased the property in your individual name, you must transfer ownership to the LLC entity. You’ll also have to record the transfer deed with the appropriate county where the real estate is located.

Step 7: Talk to lenders and tenants

If there’s an existing mortgage on the property, you’ll want to discuss it with your lender to verify whether any terms or rates on the loan will need to be adjusted. Additionally, if applicable, make sure to also pay any requisite transfer tax.  Once the transfer is complete, the LLC will be the official owner of the rental property. However, don’t forget to notify your tenants and update any lease agreements to reflect the ownership change. 

Who should form a Michigan LLC for their rental property?

For many, one of the primary reasons not to form an LLC is to avoid spending the time and money required to set up a legal business entity. However, spending the time and money at the outset can greatly reduce your risk of legal and financial liability later on down the line. 

Forming a Michigan LLC is a good idea for almost anyone who is currently leasing a rental property or looking to do so in the future. Even if you’re already renting out your property, you can still create an LLC and transfer ownership from yourself to the entity to begin reaping the benefits moving forward.

How We Can Help

If you’re a Michigan investment property owner looking for a way to protect yourself and your property, forming a rental property LLC in Michigan is a great place to start. Though it may seem like a lot of work, with our assistance, it’ll feel like a breeze. And the benefits and protections you’ll receive as a result will be well worth it.

Not sure where to start? We can walk you through the process and help you write your business plan or set up your LLC to protect your personal assets today. 

Disclaimer – The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.