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Starting an LLC for Real Estate AgentsIf you operate a real estate business, chances are you’ve given some consideration to forming a formal business entity for your company. The limited liability company (LLC) is a popular option for all sorts of businesses looking for asset protection, and it has a handful of other major advantages as well.

Of course, forming an LLC isn’t the only option for your real estate business, so our mission is to help you decide if it’s the best choice for you. There are many different factors to consider when you’re forming a business entity for your real estate company, so let’s dive into the details of the LLC to figure out if your real estate business should form one.

What Is an LLC?

First off, let’s quickly outline what an LLC is. LLCs are formal legal entities that are typically taxed similarly to sole proprietorships and general partnerships, in that the owners include any company profits or losses into their personal returns — the LLC itself does not owe income taxes. An LLC may also elect to be taxed like a corporation, although this is not a very common option.

There are similarities to corporations too, especially when it comes to financial responsibilities. In an LLC, the owners or members are not usually personally accountable for the financial status of the business. This means that if someone sues your LLC, your personal assets are not at risk.

Why Starting an LLC for a Real Estate Business Is Important

The number-one reason we encourage real estate entrepreneurs to form an LLC is the personal asset protection it provides. Whether you purchase real estate for the purpose of renting it out, or if you buy and sell residential or commercial properties, you need the limited liability protections that an LLC can provide.

As an example, let’s say that you purchase an apartment building that you plan on renting out. One of your tenants lives in a second-floor apartment with a balcony. Unfortunately, that tenant leans against a faulty balcony railing and falls, injuring their leg. If you operate your real estate business as a sole proprietorship or general partnership, your personal assets — like your house, car, personal bank accounts, etc. — would be at risk if that tenant decides to sue your business.

On the other hand, if you form an LLC for your real estate company, and you operate and maintain that LLC in a compliant fashion, the scope of your tenant’s lawsuit will be limited to your business assets. In other words, your personal assets will be protected by the business structure you’ve chosen.

However, this is just the tip of the iceberg when it comes to the advantages of the LLC for a real estate business. Another important aspect is taxation. The LLC actually provides its owners with a selection of options regarding how they want the business to be taxed, which can save you a considerable amount of money compared to simply operating as an informal business entity.

Your real estate LLC can be taxed as a sole proprietorship (for single-member LLCs) or general partnership (for multi-member LLCs), which is the default option. With this tax structure, your real estate business itself does not pay taxes, but rather the profits are passed through the business itself and your owners pay taxes on that money when they file their own personal taxes.

You can also choose for your business to be taxed as a C corporation, although this option isn’t very popular because it subjects your business to what’s known as double taxation — meaning that your profits are taxed first on the corporate level and again on the personal level when they’re distributed to your owners.

The other option is one that’s quite popular for real estate businesses, and that’s S corporation taxation. There are quite a few limitations to electing S corp taxation, but most real estate businesses have no trouble meeting these requirements — your business cannot have more than 100 owners, they all must be either residents or citizens of the United States, etc.

S corp taxation can help your real estate business save money by reducing your self-employment tax burden. Instead of paying self-employment taxes (a 15.3% tax that includes the employer and employee portions of Medicare and Social Security) on all of your business income, you can pay yourself and your co-owners a reasonable salary for your roles and only pay self-employment tax on that portion of your income, while you can reinvest the rest of it into your business without paying this tax.

Compared to operating a sole proprietorship or general partnership real estate business, the S corp taxation model can save you quite a bit of cash that you can use to buy up more properties, rather than writing a big check to Uncle Sam.

Finally, an LLC structure can enhance the credibility of your real estate business venture. Informal business entities don’t have exclusive assumed business names and typically operate under the personal name(s) of their owner(s). For instance, if your name is Johnny Smith and you operate a real estate sole proprietorship, your company’s name is also “Johnny Smith.”

With an LLC, you not only have the rights to exclusive use of a business name, but you will also have either the phrase “limited liability company” or the letters “LLC” in that business name. This provides your business with a jolt of respectability because customers respect the professionalism displayed by an LLC. Also, they typically feel more comfortable writing checks to a business entity rather than to an individual.

How to Start a Real Estate LLC

The formation process for LLCs varies depending on which state you’re forming one in, but in general, the process has some universal steps that need to be taken no matter what state your business is located in. If you want a comprehensive overview of all the steps required to form an LLC, check out our complete guide on the topic. The basic steps in the LLC formation process in any state are as follows:

The 3 Best LLC Websites

When forming an LLC for your business, you generally have three main options. You can form your own LLC using the DIY method, you can hire an attorney, or you can hire an online business formation service.

The DIY route can require quite a bit of effort, and if you’re not comfortable with the process, it can cause some undue stress. As for hiring a lawyer, many startups can’t afford to spend the thousands of dollars it can cost for an attorney to form your business entity.

This leads us to the third option, hiring an online LLC service. There are dozens of reputable companies offering this service these days, and they can all save you a tremendous amount of money compared to an attorney. In addition, while these companies may not have as much expertise as an attorney does, they still provide a considerable amount of peace of mind compared to the DIY route.

If you want to take a look at the top options for online business formation services, head on over to our guide to the seven best LLC registration services available. In addition, we’ll briefly break down our top three options on this page. These are, in our opinion, the best options for business formation service:

🥇 ZenBusiness – Best Overall Value

ZenBusiness truly has it all. They provide complete LLC formation service along with a full year of registered agent service for one incredibly low rate, and they also have stellar customer feedback. It’s the best LLC service online.     

IncFile – Cheapest LLC Service

IncFile has a business formation package that is free of charge, as long as you pay your own state fee. That’s obviously an enticing offer, especially when you consider that they also provide a year of registered agent. Throw in their strong customer feedback, and IncFile is an excellent choice for LLC formations.     

Northwest – Premium Support

Northwest is a bit more expensive, but their industry-best registered agent service includes local scanning of every document they receive on your behalf. They also have the best customer support for LLC services. If you’re looking for a premium service, Northwest is excellent.     

Additional Resources for Starting a Real Estate Business

  • Hub: You can find a broad selection of helpful tools and resources for real estate businesses through’s Hub page. From social media tips to virtual tour assistance and webinars, has resources that can help any real estate business flourish.
  • Secrets of Top Selling Agents: Owned and operated by two highly successful real estate agents, Secrets of Top Selling Agents produces helpful webinars and podcasts to help real estate businesses of all experience levels reach their maximum potential.
  • Blog: There are plenty of real estate blogs out there, but we think the most helpful one for agents who are just starting out is the blog. This blog revolves around three key tenets of real estate business ownership: lead generation, lead management, and business growth.
  • Real Estate Champions: Real Estate Champions offers mentorship opportunities, along with a wide variety of coaching, training, live classes, and free resources. Real Estate Champions has many tools that pack plenty of value for new real estate businesses and seasoned agents alike.
  • Real Estate Cyberspace Society: This is a valuable resource that provides real estate entrepreneurs with web-based tools to help you develop and grow your business. Their CyberTips email newsletter is now in its 12th year, and it includes a wealth of information to help both buyers and sellers realize their real estate goals.