"Should I put my rentals in an LLC?" is the most-asked question in small- portfolio investing, and the honest answer is: it protects less than the internet says, costs more than people expect, and is still often worth doing — correctly or not at all. The decision is attorney-and-CPA territory; this is the map, not the advice.
What an LLC actually does
A properly maintained LLC separates the property's liabilities from your personal assets: a tenant lawsuit that exceeds insurance can reach the LLC's assets, but generally not your house or savings. It does NOT protect against your own personal wrongdoing, debts you personally guarantee (nearly all small-investor mortgages), or claims where you've ignored the entity — commingling funds and skipping formalities lets plaintiffs "pierce the veil" and reach you anyway. Insurance, not the LLC, remains your first line of defense; the LLC is the backstop.
Costs and frictions
Formation and annual state fees (trivial in some states, $800+/year in California), separate bank accounts and books, and — the big one — financing: conventional lenders generally won't lend to LLCs, pushing you to commercial/portfolio loans at higher rates and shorter terms. Transferring an already-financed property into an LLC can trigger the loan's due-on-sale clause (rarely enforced, not never) and may involve transfer taxes and title-insurance wrinkles. Taxes are usually neutral: a single-member LLC is disregarded — same Schedule E, no savings.
Common structures
One LLC per property maximizes separation but multiplies fees and paperwork. One LLC for several properties pools risk within the entity but keeps the bookkeeping sane — a common middle path is grouping by equity tier. Larger portfolios sometimes add a holding company or use state-specific series LLCs where recognized. Match the structure to what's actually at risk: a leveraged $250,000 condo with $50,000 of equity needs less armor than a paid-off eightplex.
Worked example
An investor with three properties (~$180,000 total equity) and a $1M umbrella policy weighs options: per-property LLCs at ~$300/year each plus commercial refinancing at +0.75% rate, versus one LLC for the two paid-off properties (deeded in cleanly) while the financed property stays personal under the umbrella. The blended approach costs ~$400/year and no refinancing — most of the protection, a fraction of the friction.
When this rule of thumb breaks
An LLC that isn't maintained — shared bank accounts, leases signed personally, no records — is theater; courts look through it. Some states' fees and franchise taxes flip the math against small equity. Anonymity claims are mostly oversold. And the counterfactual matters: a strong umbrella policy delivers most of the practical protection for most 1–5 unit landlords. Get one hour each with a real-estate attorney and a CPA in YOUR state before restructuring anything.