Risks and Downsides

Forming and maintaining an LLC involves administrative tasks and costs. You’ll need to file articles of organization, create an operating agreement, and comply with annual reporting requirements. These tasks can be time-consuming and may require legal assistance.

The costs associated with forming an LLC vary by state but typically range from $50 to $500 for filing fees, plus ongoing annual fees, and legal and accounting fees on top of that.

The ongoing cost is what people underestimate, and California is the cautionary case: an $800 annual franchise tax per entity regardless of income, plus a gross-receipts fee on top, plus a separate Form 568 for each LLC. Stack five single-property LLCs and you have committed to $4,000 a year and five extra returns before your accountant sends a bill. That is a real hurdle rate the liability protection has to clear.

One federal filing to keep on your radar: the Corporate Transparency Act’s beneficial-ownership reporting regime, administered by FinCEN, was narrowed in 2025 so that entities formed under U.S. state law are exempt, leaving the requirement applicable to foreign entities registered to do business here. The rule has been repeatedly litigated and repeatedly rewritten — confirm the current FinCEN guidance before assuming your structure is or is not in scope.

Buying real estate through an LLC buys asset protection, some tax flexibility, and privacy, at the price of formation cost, annual filings, and a financing market that treats you as a commercial borrower. Below roughly one property, the overhead usually wins; above it, the protection does.