LLC or S-Corp for liability protection?

Hello there – we own a 2-family home with a rental apartment and were curious whether setting up an LLC or S-Corp for the rental unit offers much in the way of liability protection, beyond homeowners insurance. Does anyone have experience with that? Is it a difficult process? Is one form of organization preferred over the other? Thanks so much.

Guest User | 5 years and 5 months ago

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resident2 | 5 years and 5 months ago

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The whole building needs to be “owned” by the LLC or Corporation whichever you decide.. You cannot separate your tenants apartment to an LLC without filing a condo plan… no I do not recommend that!
If this is the only house you own you should look at why you think you need an LLC or to protect your liability, that a good Insurance Policy + an Umbrella Policy cannot do?
Many people choose an LLC so as to live a little more anonymously, known people, famous or infamous as well as Landlords that own a lot of Property. I own mine in all different LLC’s mostly so that people cannot work out what I own so easily. Most of my tenants think I am just the managing agent etc. It makes life easier. But yes, keep your bookkeeping straight, that is a good thing to do for many reasons. The expenses of such can be written off against your rental income as a business expense, so just do it.
But, if this is your only home with just the one tenant , then keep it simple & get an Umbrella Policy.

stevecym | 5 years and 5 months ago

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let me advise you of something else that someone told me recently. you will want to know this if you do this yourself. when you form a corp (and i assume an llc) you must publish a notice of incorporation in a paper. we see them all in the legal notices sections of the papers. when people file the incorporation they do not often do this. so if something goes wrong, i am told, it is possible for someone (a good lawyer) to pierce the corporate protection. also, if you are going to run a firm to limit your liability, also keep funds separate. if you take money out of the corp, do so legally and don’t just pay for your child’s braces out of the corps account; if something happens later a judge can find that you and the corp are not separate entities.

if you do not take measures to ensure the corporation is separate from yourself, there is no point in having it, in my opinion. i actually don’t see any tax benefit to the corp and think it is a pain in the neck. everybody i know who has done this for business sooner or later wants to get out of it – includin g me.

i was kind of hoping other would pipe in here because i know some of them on here know about this with respect to real estate. but there is plenty written on this on line. perhaps it would pay for you to speak to an attorney. i do that with my business. i keep an attorney around who belongs to a firm and when i have a question, i call them , get an opinion and they bill me for the time.

Guest User | 5 years and 5 months ago

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thank you both!
Does the entire property need to be in the name of the LLC/S-Corp? Anything else I should be aware of to ensure there’s a legal distinction?

stevecym | 5 years and 5 months ago

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forming either one is a piece of cake with the nys secretery of state website though you have have to apply for s corp status with a separate form (for both the fed and NYS). my company is set up as an s-corp. if i were to do this all over again, i think i would go the llc route. i think tax filing might be easier. also, with corps, they can be sticklers with filing deadlines.

there was a post on here, possibly during a discussion about the covid benefits for landlords (or lack there of) and some people mention being set up as an llc or corp and perhaps some of the downsides of each, can’t recall specifically. it was very recent.

i think one thing someone said was that banks are less likely to work with loaning money to the llc/corps. basically, for a small business to borrow money as a llc/corp, the officers have to make a personal guarantee of payment.

hasibur.rahman07 | 5 years and 5 months ago

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I don’t know which one is better… However forming the LLC was a piece of cake. I initially asked my accountant to do it and they managed to mess it up. I went ahead and did it myself and it was faster as well. The NYS website has all the instructions and it’s easy to follow.