Deciding whether to obtain a business license as a landlord is an important and exciting step in your journey, and the decision depends on a variety of factors. Explore the details of business licenses and whether it is something you should consider.
If you own rental property or consider yourself a real estate investor, you will need to determine the best way to structure the operations of your rental management business. You should consider how you will collect rent, what type of bank account you will use to process your income and expenses, and how to track all of your accounting.
It is beneficial to think of being a landlord as a business, even if you just own one property. You will find the most success through proper planning and organization of your landlord operation. As you begin to think about your rental property as a business, start thinking about your goals and which business structure will work best for you.
Landlords can choose to operate their rental property as a sole proprietorship or choose to form a company to keep their rental property financials separate from personal finances. Moving your rental management into a separate company, even one that is owned as a sole proprietorship, can be especially helpful as portfolios grow.
Exploring business structure options and their benefits can help you make the best choice for your portfolio goals.
What kind of business am I as a landlord?
As a landlord, your business is considered a sole proprietorship unless you explicitly file as another business structure with your state. Whether you own one property or several, you are considered the sole proprietor of your portfolio, unless you choose to create a different kind of business. One of these options is a limited liability company, or LLC, which would be filed with your state government. An LLC is a common business structure for landlords, which offers benefits that may be of interest to you, such as personal asset protection. Additionally, using an LLC to form a business that is kept separate from your personal property and accounts may be beneficial.
Understanding small business structures is key when starting your rental business. In general, a sole proprietorship is less complicated than an LLC, as it is easier to set up and requires less paperwork. However, a sole proprietorship is not protected from liability, while an LLC helps to protect its members from personal liability. An LLC is also considered an entity separate from the person running it, while a sole proprietorship has much less separation. An LLC may also benefit from greater credibility in the eyes of renters, which can mean they are more likely to rent from you.
Learn more: Do I Need an LLC to be a Landlord?
The U.S. Small Business Administration has a website where you can find information on where and how to file for your business, depending on your state. This page specifically has a resource to enter your state and links to the website you would need to use.
Learn more: How to set up a Business Checking Account for Landlords
Do I need a business license as a landlord?
Ultimately, this is an issue that varies depending on your municipality. Some locations require certifications that aren’t specifically business licenses, and some have no requirements at all. As such, it is best practice to speak to an attorney and research your local laws by contacting your landlord association.
Additionally, if you own properties across a large area, the laws for some of these properties may be different from others. If that is the case, you may benefit from speaking with multiple experts on the areas’ laws and regulations.
Regardless of where you and your properties are located, it may still be beneficial to form an LLC. This can help with streamlining your business’s taxes, protecting your personal liability, and adding structure to your business. That said, an LLC does have its own requirements that you should consider before making the jump.
How do I find out if I need a business license as a landlord?
Finding out if you need a business license as a landlord is simple. Many cities, especially larger ones, require a business license, but not all of them do. As such, this is something to find out on an individual basis, especially if you are operating in multiple cities. You can research your local laws using the government websites for your state, county, and municipality. The best thing you can do is speak to a lawyer with experience in this area.
How do I get a business license as a landlord?
Typically, if you need a business license, the process of obtaining one is fairly straightforward. Like most legal proceedings, the requirements vary based on the state and county you live in, but it typically entails a small application fee and registration with your local government.
Decide what business structure you want to pursue, which may change the requirements of your business license. Then, with the guidance of a legal professional or landlord association, you will determine if you need that license. Even if you do not need it, there may be other requirements to meet before you can rent out your property, which should also be researched on an individual basis. Finally, you will fill out the required forms and applications to obtain your license.
Unfortunately, there is no master list of websites and locations to apply for a business license. However, searching for your city and state’s business license application online should provide an easy way of obtaining the form. That said, it may be easier to either call or go into your city hall and speak to a representative, who can give you all of the forms you will need and guide you through the process. Some municipalities will allow you to apply online, but many expect you to mail in the forms or bring them to your city hall.
Final Thoughts
Getting a business license as a landlord is a simple and easy process, if it is even necessary. All you need to do is decide what kind of business works best for your needs, speak to a lawyer or legal professional to determine the necessity of a business license for your circumstances, and apply. When these steps are completed, and any licenses you need have been approved, you should be able to continue growing your portfolio.
