Forming a Limited Liability Company (LLC) for real estate can be one of the smartest decisions a property owner makes. LLCs protect personal assets from lawsuits, simplify ownership structures, and make it easier to transfer or manage investment properties. Whether you own a single rental unit or multiple developments, the right legal entity can reduce risk and improve operational efficiency.
At North City Law, our Washington real estate LLC lawyers advise property owners, landlords, and investors on structuring and managing LLCs to protect their interests. We help ensure compliance with state law, proper formation, and clear operating agreements that minimize exposure and support long-term success.
Why Use an LLC for Real Estate Ownership?
Forming a Limited Liability Company (LLC) for real estate transactions can protect owners from personal liability, simplify management, and offer other economic benefits.
The relative affordability of forming LLCs also makes them popular for separating property assets and their related risks. LLCs also provide flexibility in ownership and can make it easier to transfer property interests. This article discusses some common ways real estate investors use LLCs in their businesses.
If I Have an LLC, Can I Represent the LLC in Legal Proceedings?
No. Even if you are the only owner of an LLC, you may not represent the LLC in any court filings or proceedings. Similarly, any managers or officers that you may employ also cannot represent the LLC in legal matters. In Washington, such representation would be considered to be the unauthorized practice of law, as only lawyers may represent business entities.
The only exception would be if you own a property as an individual. In this case, because you (and not an LLC or other entity) own the property, you are entitled to represent yourself. However, in this situation, you cannot delegate this authority to a manager.
How Does Asset Segregation Protect Real Estate Investors?
Liability follows the entity responsible for harm. By placing each property into its own LLC, landlords and investors can segregate risk.
If one property faces a lawsuit, financial loss, or debt, the others remain insulated.
For example:
- If a tenant sues after a slip-and-fall in Property A (owned by LLC A), Property B (owned by LLC B) is not at risk.
- If an LLC defaults on a contract, creditors cannot pursue the owner’s personal assets.
This approach also simplifies accounting and makes ownership transfers cleaner—especially when selling or bringing in partners.
Why Are LLCs Preferred Over Other Business Structures?
In general, LLCs are favored as compared to other legal entities for a few reasons including their flexibility, relative ease of use, and relatively low overhead costs. In years past, LLCs would also be used to keep personal ownership information private. However, the Corporate Transparency Act will likely make this privacy feature less relevant.
However, when taken into combination, the three advantages of LLCs are particularly meaningful for real estate structuring: The flexibility, operational simplicity, and low costs make it much more viable to establish new entities for individual properties, which means their liabilities can be separated. Transferring membership interests in the LLC rather than title interests in the real estate asset it holds can also offer additional transaction flexibility for joint ventures and estate planning.
How Do LLC Transactions Differ From Real Estate Transactions?
The due diligence aspects of the transaction, along with its fundamentals, are very similar except for some additional due diligence confirming the LLC ability to act and its other liabilities. From there, though, things start to look very different. Rather than a transfer of real property occurring, there is a transfer of personal property, which is a membership interest in the LLC. There may be different classes of membership interest with different rights and duties. No public recording is required, the titled owner of the real property remains the same. However, transferring a controlling interest is still considered a taxable event. And note, most financing will require lender consent before a change in control.
Can an LLC Still Participate in a 1031 Exchange?
Yes, an LLC may participate in a 1031 exchange. However, it is important to distinguish the LLC’s participation from that of its members. A fundamental characteristic of a 1031 exchange is that it is the sale of interest in real estate for the purchase of interest in real estate. So, if an LLC that owns real estate has an interest in real estate. But the members of the LLC do not, they have a personal property interest in the LLC instead. Similarly, fractional transfer by some members and not all becomes much more complex. As a simple rule of thumb, the names on title for the purchase must match the names on title for sale.
When Should You Form Separate LLCs for Multiple Properties?
Many investors choose to form one LLC per property to isolate liability and simplify bookkeeping. However, this approach can increase administrative costs.
Our real estate listing and LLC attorneys can help determine the right balance between protection and practicality by assessing:
- Portfolio size and property values
- Financing and lender requirements
- Tax strategy and reporting complexity
- Future transfer or estate planning goals
Get Legal Guidance from a Washington Real Estate LLC Lawyer
Using LLCs for property ownership offers powerful benefits—but also introduces legal and tax considerations that require careful attention.
From initial formation and drafting operating agreements to restructuring portfolios and managing 1031 exchanges, North City Law provides end-to-end support for real estate investors and property owners.
Contact our Washington real estate LLC attorneys today to learn how to structure your holdings for maximum protection and long-term success.