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

If you own or plan to buy rental property in Delaware, you’ve probably heard that forming an LLC can be a smart move. But how exactly do you set up an LLC for a rental property? What does it protect you from, and how much does it cost? Delaware is known for being business-friendly, but there are specific steps and rules landlords should know before diving in. In this guide, we’ll walk you through the essentials of forming an LLC in Delaware, what to expect, and how it fits into your overall rental property strategy.

Why Delaware landlords consider an LLC for their rental property

Delaware is famous for its pro-business climate, flexible laws, and strong privacy protections. That’s why many landlords and investors choose to form LLCs here—even if the rental property itself is located in Delaware. An LLC (limited liability company) may help separate your personal assets from your rental business, potentially providing some protection from certain legal and financial risks tied to your properties.

But an LLC isn’t a magic shield—it won’t protect you from everything. Plus, setting one up involves ongoing paperwork and fees. So it’s worth understanding exactly what an LLC can do for you, and how to get it set up correctly in Delaware.

If you’re curious about the basics before diving into Delaware specifics, check out our general guide on should landlords use an LLC.

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

An LLC is a business structure that combines elements of corporations and partnerships. For landlords, the main appeal is liability protection. When you own rental property in your own name, creditors and lawsuit claimants can sometimes go after your personal assets—like your home, savings, or investments. With an LLC, the company is its own legal entity, so your personal assets are generally separate from the business liabilities.

That said, an LLC doesn’t protect you from everything. For example, if you personally guarantee a loan or commit fraud, you may still be personally liable. Also, an LLC won’t shield you from tenant-related injuries if you don’t carry proper insurance. This is why it’s important to understand the difference between liability protection from an LLC and risk coverage through insurance.

To get a clear picture of how risk management works, see our post on LLC vs umbrella insurance which explains how these tools complement each other.

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

This is a general overview of the steps involved in setting up an LLC in Delaware. It’s advisable to consult a qualified attorney or professional for personalized assistance.

1. Choose a name for your Delaware LLC

Your LLC’s name must be unique and include the phrase “Limited Liability Company,” or abbreviations like “LLC” or “L.L.C.” You can check name availability on the Delaware Division of Corporations website.

2. Designate a registered agent

Delaware law requires your LLC to have a registered agent with a physical address in the state. This agent receives official documents and legal notices on your behalf. You can act as your own agent if you have a Delaware address, or hire a registered agent service.

3. Prepare and file articles of organization

The articles of organization are the official document that creates your LLC. They include basic info like your LLC name, registered agent, and the nature of your business.

You can file the articles online or by mail with the Delaware Division of Corporations. The official site has a helpful guide on how to file articles of organization in Delaware.

4. Pay the LLC filing fee

Delaware charges a $90 LLC filing fee when you submit your articles of organization.

5. Create an operating agreement (optional but recommended)

While not required by Delaware law, an operating agreement outlines ownership percentages, management structure, and operating rules. It’s a good idea for landlords with multiple members or complex arrangements.

6. Apply for an EIN from the IRS

An EIN (employer identification number) is like a Social Security number for your LLC. You may need an EIN to open bank accounts, file taxes separately from your personal returns, and handle payroll if needed. It’s best to consult a tax professional for guidance. You can get an EIN for free directly from the IRS website.

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

The initial cost mainly comes from the LLC filing fee, which is $90 in Delaware. You may also pay for a registered agent service, which typically ranges from $100 to $300 per year if you don’t have a Delaware address.

Don’t forget ongoing fees:

• Delaware requires LLCs to pay an annual franchise tax of $300, due June 1 every year.
• While Delaware does not require LLCs to file an annual report, the franchise tax is mandatory.
• If you hire a registered agent, that’s an ongoing cost as well.

So, in total, expect to spend at least a few hundred dollars each year just to keep your Delaware LLC in good standing.

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

If you file online, Delaware can process your LLC formation in as little as 1-2 business days. For an additional fee, expedited services can speed this up to same-day or even within hours.

Mail filings usually take longer, typically around 7-10 business days.

Once your articles of organization are approved, your LLC officially exists.

What are articles of organization and how to file them?

Articles of organization are the formal documents you file with the Delaware Division of Corporations to create your LLC. They confirm your LLC’s name, registered agent, and basic details.

Filing can be done:

• Online through the Delaware Division of Corporations online portal
• By mail, sending the completed form and payment to:

            Delaware Division of Corporations
            401 Federal Street, Suite 4  
           Dover, DE 19901

The form is simple, but accuracy is important.

Do I need a lawyer to start an LLC, or can landlords DIY?

You do not necessarily need a lawyer to start an LLC in Delaware. Many landlords successfully handle the entire process on their own by following state instructions.

However, if your rental ownership involves multiple members, complicated partnership terms, or you want customized operating agreements, it might be worth consulting an attorney.

For straightforward LLCs owning a few rental properties, DIY is often feasible. Just be sure to double-check your filings and compliance deadlines.

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

Obtaining an EIN is free and easy through the IRS website. You’ll need your LLC’s official formation documents handy.

You may need an EIN for:

• Opening a bank account in your LLC’s name.
• Filing federal taxes separately from your personal returns.
• Hiring employees or contractors if needed.

Consult a tax professional to understand your specific requirements. Apply directly on the IRS page to get an EIN for your LLC.

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

Delaware LLCs have relatively simple compliance requirements:

• They must pay an annual franchise tax of $300 by June 1.
• Unlike corporations, Delaware LLCs do not need to file an annual report.
• Keep your registered agent information up to date.
• Maintain good standing by promptly paying fees and any applicable taxes.

Missing the franchise tax deadline may result in penalties and affect your LLC’s good standing. Always verify deadlines and requirements with official sources or professionals.

S corp vs LLC for landlords: what’s the difference?

Some landlords wonder about the difference between an LLC and an S corporation. Both offer liability protection, but they differ mainly in tax treatment and management.

• An LLC is more flexible and simpler to maintain, often preferred by real estate investors.
• An S corp is a tax election made with the IRS that can reduce self-employment taxes but requires stricter rules on ownership and management.
• For rental property owners, the income is usually passive, so electing S corp status may not provide significant tax benefits.

This is a complex topic, so talk to a tax professional to see what fits your situation best.

LLC vs umbrella insurance for rental property risk management

LLCs and umbrella insurance serve different but complementary purposes.

• An LLC provides legal separation of personal assets from business liabilities.
• Umbrella insurance adds an extra layer of liability coverage beyond your underlying policies.

Many Delaware landlords consider having both an LLC and adequate insurance. You can learn more about the differences and why both matter in our post on LLC vs umbrella insurance.

Also, be sure to review your specific landlord insurance in Delaware options to protect your investment.

When does setting up an LLC make sense for Delaware landlords?

An LLC may be a good fit if you want to:

• Separate your rental property liabilities from personal assets.
• Build a professional business structure for growth.
• Simplify transfers of ownership or bring in partners.

It might not be necessary if you own a single property and have minimal liability exposure, especially considering the ongoing costs and paperwork.

Ultimately, consider your risk tolerance, the size of your portfolio, and your long-term plans. And always consult with a qualified attorney or tax advisor before making your decision.

Next steps: protect your Delaware rental with the right LLC and insurance setup

If you’re ready to move forward, consider starting by checking name availability and preparing your articles of organization with the Delaware Division of Corporations. It’s a good idea to consult with a qualified attorney or advisor before proceeding.

Don’t forget to get your EIN and consider drafting an operating agreement.

Finally, review your insurance coverage to ensure you’re protected. For Delaware landlords, having the right landlord insurance in Delaware can be just as important as forming an LLC.

To recap, if you want to learn more about whether you should landlords use an LLC or how to balance business structure with insurance, check out our related articles.

Official Delaware and IRS resources

• Delaware Division of Corporations: https://corp.delaware.gov
• Delaware LLC filing and fees: https://corp.delaware.gov/howtoform.shtml
• IRS EIN application: https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online

Remember, forming an LLC is a useful tool for many Delaware landlords, but it’s just one part of your overall rental property strategy. Always seek professional advice tailored to your unique situation.