How to set up an LLC for your rental property in Arizona

If you own rental property or plan to buy in Arizona, you’ve probably heard about using an LLC to own your investment. Limited liability companies, or LLCs, are popular among landlords for shielding personal assets and managing property-related risks. But how exactly do you set up an LLC for a rental property in Arizona, and what should you know about the process?

In this guide, we’ll walk you through the Arizona-specific steps, costs, and considerations for forming an LLC to hold your rental property. Whether you’re a seasoned real estate investor or just starting out, this article will help you understand what’s involved and why an LLC might be a beneficial option.

What is an LLC and what does it protect you from as a landlord?

An LLC is a business structure that combines the flexibility of a partnership with the liability protection of a corporation. For landlords, forming an LLC to own rental property may help separate your personal assets (like your home or savings) from liabilities related to your rental business.

What does LLC protect you from? Primarily, it is designed to provide limited personal liability if someone sues your rental business—for example, after a tenant injury or property damage claim. If your rental property is owned by an LLC, generally only the assets owned by the LLC are at risk, not your personal belongings. However, you should consult a legal professional to understand how liability protection applies to your specific situation.

However, it’s important to understand that an LLC doesn’t protect you from everything. It won’t shield you from personal negligence, fraud, or unpaid taxes. Also, having an LLC doesn’t replace the need for good landlord insurance to cover property damage, liability, and loss of rental income. For a deeper dive into how LLCs stack up against insurance, check out this article on LLC vs umbrella insurance.

Step-by-step: how to set up an LLC for a rental property in Arizona

Ready to get started? Here’s a straightforward look at how to set up an LLC for a rental property in Arizona.‍

1. Choose a name for your LLC  

Your LLC’s name must be unique and include “Limited Liability Company” or an abbreviation like “LLC.” You can check name availability on the Arizona Secretary of State’s website.‍

2. Appoint a statutory agent  

Arizona requires your LLC to have a statutory agent (sometimes called a registered agent) with a physical address in the state. This person or business receives official documents and legal notices on behalf of the LLC.

3. File articles of organization  

The articles of organization is the official document that creates your LLC. It includes basic info like your LLC’s name, statutory agent, and business address. You’ll file this with the Arizona Corporation Commission.‍

4. Create an operating agreement (optional but recommended)  

While not required by Arizona law, an operating agreement outlines ownership and management rules. It’s especially helpful if your LLC has multiple members.

5. Obtain an EIN from the IRS  

An Employer Identification Number (EIN) is like a Social Security number for your LLC. You may need it to open bank accounts, file taxes, and pay employees (if any). You should verify requirements with the IRS or a tax professional. You can apply for your EIN online on the IRS website.

6. Register for state taxes if necessary  

Depending on your rental business setup, you may need to register with the Arizona Department of Revenue for transaction privilege tax or other tax accounts.

7. Open a business bank account  

It is generally recommended to keep your rental property finances separate from your personal accounts by opening a bank account in your LLC’s name to help maintain liability protection.

How much does it cost to set up an LLC in Arizona?

One of the most common questions is: how much does it cost to set up an LLC? In Arizona, the initial LLC filing fee for the articles of organization is $50 if you file online or $85 for paper filing. 

There are also ongoing costs to keep your LLC in good standing:

• Annual report fee: Arizona requires LLCs to file an annual report each year with a $0 fee, which means no charge, but you must still file to keep accurate records.
• Statutory agent fees: If you hire a commercial registered agent service, expect to pay anywhere from $100 to $300 per year.
• Miscellaneous fees: You might incur other small costs, like business license fees depending on your city or county.

Overall, Arizona’s LLC filing fees are relatively affordable compared to other states, making it an accessible option for landlords.

How long does it take to set up an LLC in Arizona?

The timeline for forming an LLC in Arizona can vary depending on how you file and the current workload at the state.

• Online filings: Typically processed within 1 to 3 business days.
• Mail filings: Usually take 7 to 10 business days.

If you need faster processing, Arizona offers an expedited service for an additional fee.

You may want to plan ahead, especially if you want your LLC formed before closing on a rental property. Consider consulting professionals regarding timing.

What are articles of organization and how to file them in Arizona?

Articles of organization are the official paperwork that creates your LLC under Arizona law. Think of it as your LLC’s birth certificate. This document includes:

• Your LLC’s name  
• The statutory agent’s name and address  
• Whether your LLC will be member-managed or manager-managed  
• The LLC’s principal address  

Filing your articles of organization is done with the Arizona Corporation Commission. You can file online through their eCorp portal, which is fast and convenient. Alternatively, you can download a paper form from the Arizona Corporation Commission’s forms page.

After filing and paying the LLC filing fee, you’ll receive a confirmation that your LLC is officially registered.

Do I need a lawyer to start an LLC in Arizona?

Many landlords wonder if they need a lawyer to start an LLC. The process is designed to be DIY-friendly, especially with online filing options and clear instructions from the state.

That said, consulting a lawyer or tax professional can be valuable if you have complex situations, want help drafting an operating agreement, or need advice on how to structure ownership and management.

For most landlords with straightforward rental properties, setting up an LLC on your own is often doable and cost-effective.

How to get an EIN for an LLC that owns rental property

Once your Arizona LLC is formed, you may need an EIN (Employer Identification Number) from the IRS to handle tax filings and banking.

Getting an EIN is generally simple and free. You can apply online using the IRS’s EIN application portal. The process typically takes about 10 minutes, and you usually receive your EIN immediately upon completion, but check the IRS website for current procedures.

Remember to keep your EIN handy for opening your LLC’s bank account and when filing taxes.

Do LLCs need annual reports and other ongoing compliance in Arizona?

In Arizona, LLCs are required to file an annual report with the Corporation Commission. Fortunately, Arizona does not charge a fee for this report, but filing is mandatory to keep your LLC in good standing.

The annual report confirms or updates information like your LLC’s address and statutory agent. You can file it online through the Arizona Corporation Commission’s eCorp portal.

Aside from the annual report, maintaining your LLC includes:

• Paying any applicable state taxes  
• Keeping business licenses current if required  
• Maintaining separate financial records  

Staying on top of these can help ensure your LLC maintains its liability protection, but you should consult legal counsel for personalized advice.

S corp vs LLC for landlords: what to consider

If you’re exploring business structures, you may have come across both LLCs and S corporations (S corps). Both offer liability protection, but they differ in taxation and management.

• LLC: Offers flexibility in ownership and management, with pass-through taxation by default. Good for landlords who want simplicity.
• S corp: Has limits on ownership and requires more formalities, like issuing stock and holding meetings. S corps can offer tax advantages around self-employment taxes but are more complex.

Choosing between an S corp and LLC depends on your financial goals and how you want to structure your rental business. Since tax implications vary, it’s strongly recommended to consult a qualified tax professional or attorney before deciding.

LLC vs umbrella insurance for rental property risk management

While an LLC generally provides legal liability protection, it’s not a substitute for insurance. Many landlords wonder whether to rely on an LLC or umbrella insurance to protect their rental property and personal assets.

An LLC is designed to provide protection for your personal assets from lawsuits related to the rental property, but it doesn’t cover property damage, liability claims, or losses. Landlord insurance policies cover these risks and can be supplemented with umbrella insurance to increase liability limits.

For more on this topic, check out our detailed comparison of LLC vs umbrella insurance.

When does setting up an LLC make sense for landlords in Arizona?

Using an LLC is often considered beneficial if you want to:

• Separate personal and rental property liabilities  
• Simplify managing multiple rental properties  
• Enhance credibility with lenders or partners  

However, an LLC might not be necessary if you own just one property and have minimal risk exposure. Also, keep in mind that transferring an existing property into a new LLC can trigger tax and mortgage implications. It’s advisable to consult a tax advisor or attorney before transferring property.

For landlords considering whether an LLC is right for them, our general guide on should landlords use an LLC offers helpful insights.

Review your insurance alongside your LLC setup

Remember, forming an LLC is just one piece of the puzzle for protecting your rental property and personal assets. Make sure you also have appropriate landlord insurance coverage tailored to Arizona’s market and risks.

If you’re curious about options available to Arizona landlords, check out our guide on landlord insurance in Arizona.

Final thoughts

Setting up an LLC for your rental property in Arizona can be a practical way to protect your personal assets and manage your investment business. The process is straightforward, with affordable filing fees and clear state requirements. While you don’t need a lawyer to start, professional advice can help with complex decisions.

Keep in mind that an LLC doesn’t replace insurance, and combining both strategies offers stronger protection. For more details on the benefits and considerations, explore our resources on should landlords use an LLC and LLC vs umbrella insurance.

For official details and to get started, visit the Arizona Corporation Commission and the IRS EIN application.

Good luck with your Arizona rental property journey!