Washington attorney Drew Tingstad explains the pros, cons, and practicalities landlords need to know.
For many landlords, the question of whether to hold rental property in a Limited Liability Company (LLC) comes up sooner or later. It’s a topic that inspires confusion, hesitation, and—sometimes—heated debates in investor forums. Some insist it’s unnecessary paperwork. Others say it’s essential for protection.
According to Drew Tingstad, an attorney with Beresford Booth in Edmonds, Washington, the answer isn’t one-size-fits-all. “The big question I hear all the time is: should I put my rental property in an LLC?” Tingstad said in a recent presentation. “And the answer is: it depends. The considerations abound. If we’re talking about your principal residence, that’s a different story—we typically wouldn’t advise it. But when it comes to rental property, the calculus shifts pretty dramatically.”
An LLC, is a type of business entity that offers significant benefits to property owners. Think of it as a separate legal person created by statute. Historically, this entity type emerged to combine the liability protection of a corporation with the flexibility of a partnership, giving owners the best of both worlds.
LLCs are now a familiar part of the business landscape, but they’re relatively new compared to traditional corporations. They were created to solve a problem: corporations offered liability protection but were rigid in structure, while partnerships were flexible but left owners personally exposed.
“Lawyers and lawmakers eventually figured out we could combine the best of both worlds,” Tingstad explained. “That’s how LLCs came about. They give you the liability protection of a corporation with the flexibility of a partnership.”
In Washington, the LLC Act was first passed in 1994, following similar moves in states like Wyoming and Delaware. Today, LLCs are the default choice for real estate investors of all sizes—from single-property landlords to large syndicators—because of their adaptability.
An LLC has a few key roles:
By default, Washington LLCs are manager-managed, but landlords can choose a member-managed model instead.
In a member-managed LLC, all members vote on decisions. In a manager-managed LLC, day-to-day authority rests with the designated manager.
“It’s similar to a corporation’s board of directors versus shareholders,” Tingstad explained. “Some decisions require a member vote, but a lot can be delegated to the manager.”
This flexibility is part of why LLCs are so popular for real estate. You can structure ownership and decision-making however makes sense for your situation.
“You might have an investor who helps you buy a property but doesn’t get a say in how you run it,” Tingstad said. “In that case, you give them only economic rights. They get distributions if the property makes money, but they don’t vote on decisions. It’s a way to raise capital without giving up control.”
The number one reason landlords form an LLC is to shield their personal assets
“Say you own a rental property in your personal name,” Tingstad said. “A tenant slips on the sidewalk, sues, and wins a $100,000 judgment. If it’s in your name, your personal assets—your savings, your house—could be on the line. If it’s in an LLC, the judgment is against the company, not you. That shield can be life-changing.”
The shield is not absolute. Courts can “pierce the corporate veil” if an LLC is a sham—such as when an owner co-mingles personal and business funds, fails to keep records, or ignores formalities. “You can’t co-mingle personal and business funds,” Tingstad cautioned. “All income goes into the LLC account. All expenses come out of it. If you treat the company account like your personal credit card, you risk losing that protection.”
Real-world cases underscore the risk. Washington courts have pierced LLC protections where owners failed to respect the separateness of the entity. The bottom line: the LLC works if owners treat it like a true company.
Unlike corporations, which have more rigid tax treatment, LLCs are highly flexible:
This adaptability is a major draw for landlords. “You get to choose how you’re taxed,” Tingstad said. “That’s not something you can do with a corporation. It lets you work with your accountant to optimize for your situation.”
Additionally, if you transfer a property you already own into an LLC, Washington State allows an exemption from the real estate excise tax—removing a common cost barrier.
For property owners thinking long term, LLCs also play a powerful role in estate planning.
“You can gift $12,500 in value per year per child tax-free,” Tingstad explained. “If your property is in an LLC, you can gift membership interests incrementally, reducing your taxable estate while keeping control.”
LLCs also simplify succession. Instead of transferring a deed to real property—a process that can trigger taxes and recording fees—owners can transfer membership interests. “It’s a clean way to pass wealth across generations without constantly re-deeding property,” he said.
For larger portfolios, LLCs can be stacked inside holding companies or family partnerships, creating layered structures that maximize both asset protection and estate tax efficiency.
Despite their many advantages, LLCs come with costs and responsibilities landlords need to weigh:
There are also practical considerations:
Landlords who decide to form an LLC typically go through these steps:
From there, discipline is key. “Separate your accounts. Keep minutes. Respect the entity,” Tingstad said. “That’s what preserves the liability shield.”
According to Tingstad, several missteps can undermine the protections landlords expect from their LLCs:
While liability is the most obvious benefit, Tingstad emphasized that LLCs are ultimately about planning and professionalism.
“Far and away, the biggest benefit is liability protection,” he said. “But beyond that, it’s about structure, flexibility, and foresight. An LLC is more than a legal form—it’s a way of thinking ahead.”
Tenants often feel more comfortable renting from an entity rather than an individual. Banks and partners appreciate the professionalism. And heirs benefit from clarity when ownership interests are clearly defined.
“It’s not just about forming the entity,” Tingstad concluded. “It’s about being intentional. If X happens, you know Y will follow. That peace of mind is invaluable.”
For landlords, deciding whether to put rental property in an LLC is not a box to check—it’s a strategic decision. The structure offers protection, tax flexibility, and estate planning advantages, but only if set up carefully and maintained with discipline.
The modest costs pale in comparison to the risks of owning rental property in your personal name. For many landlords, the LLC is both shield and strategy—safeguarding today’s investments while laying the groundwork for tomorrow’s success.
The Joseph Group specializes in helping landlords across the Puget Sound region protect their investments and maximize returns. Whether you’re weighing the move to an LLC or simply want stress-free property management, our team provides the structure, expertise, and support you need. Contact The Joseph Group today to learn how we can help.