Holding investment properties in LLCs is common advice - but the execution details matter enormously, and common mistakes can cost more than the protection is worth.
The most common LLC mistake single-family investors make is treating the entity as a formality rather than a genuine legal separation. Commingling personal and business funds - running personal expenses through the LLC account, using the LLC card for personal purchases - pierces the corporate veil and eliminates the liability protection you were trying to create in the first place.
Financing complications are the practical reality most advisors don't emphasize enough. Conventional mortgages - Fannie/Freddie conforming loans - cannot be originated to LLCs. If you want to buy under an LLC, you're looking at commercial or portfolio lending, which typically means higher rates, shorter terms, and larger down payments. Many investors buy conventionally, then transfer to an LLC, which can trigger a due-on-sale clause in the mortgage.
California specifically adds complexity. LLC franchise taxes start at $800/year minimum, and LLCs with California-sourced income above certain thresholds pay additional fees. For a single-family rental generating $30K–$60K in gross rent, the friction cost of a California LLC can be meaningful relative to the protection benefit - particularly if your liability exposure is adequately covered by landlord insurance.
Before setting up an LLC for investment properties, consult a California real estate attorney and a CPA who specializes in real estate. The right structure depends on your equity exposure, insurance coverage, lender requirements, and long-term portfolio goals. One-size advice rarely fits here.
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