Texas rental property LLCs

Create a Rental Property LLC in Texas

There are many benefits of forming an LLC for rental properties in Texas. Learn how to create an LLC and how we can help make it easier for you.

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Real estate is a valuable business asset. Getting into the real estate business through a rental property can be a great way to cash in on the property you already own. For an extra layer of protection in the business world, you can place your rental property business in a limited liability company (LLC). Use our Texas LLC Formation Service for help starting your rental property business swiftly and easily. Once you have an LLC for your rental property in Texas, our various business services and products can help you run your business efficiently. 

How to form an LLC for your Texas rental property

If you don’t know the first thing about how to set up a real estate LLC in Texas, you can start with our Texas LLC Formation Service. 

Step 1: Choose LLC Name

When selecting a name for your LLC, be sure to choose one that meets state requirements. We can do a search for you to see if the business name you want is available, and reserve it while you get the filing paperwork together. 

Step 2: Select Registered Agent

All businesses are required to appoint a registered agent. This person is responsible for receiving important documents on behalf of the LLC, such as state correspondence and legal notices. If you need a Texas registered agent, we can help you find one.  

Step 3: File Certificate of Organization

To officially form your rental property LLC in Texas, you need to file a Certificate of Formation with the Secretary of State and include the appropriate filing fee.

Step 4: Create an Operating Agreement

Your LLC’s Operating Agreement is one of your most important business documents. It governs how your LLC runs and provides instructions for anything from voting procedures to dissolve the company. If you’re not sure how to create an Operating Agreement, we offer templates that can serve as a guide. 

Step 5: Apply for Employment Identification Number (EIN)

An EIN is like a social security number for your LLC. Having one is necessary for certain business matters, such as opening a business bank account, hiring employees, and getting financing. You can apply for an EIN yourself on the IRS’s website, or we can do it for you with our EIN service

When you own your property before starting your LLC, you can transfer the property to the LLC. You need to transfer the property deed in a written document. Once you have a properly completed deed, you record it in the county where your property is.  

If you have a mortgage on the real estate you transfer to your LLC, you need to talk to your bank about changing the paperwork. You will probably need to renegotiate the terms and rates of your mortgage. You also need to inform your current tenants about the change in ownership and update their leases accordingly. 

What to know before creating a rental property LLC in Texas

There are many ways you can structure a business for your real estate investment, but forming an LLC might be your best option. 

Benefits of creating LLCs for rental properties in Texas

Is forming an LLC a good choice for you? Read our brief review below about the benefits of placing your investment property in an LLC. 

Liability Protection

Fighting lawsuits against your business is not fun, especially when the fight infiltrates your personal life. The good news is that running an LLC for your rental property can cut this stress in half. Members/owners of Texas LLCs are normally not personally liable for the legal or financial obligations of their LLCs.

Pass-Through Taxation

Many corporation owners/shareholders suffer under a “double taxation” system. Corporate double taxation means that the corporation itself pays income taxes on its revenue, and then the shareholders pay income tax on the distributions they receive from the corporate revenue. LLC owners normally enjoy pass-through taxation. This means that the LLC itself doesn’t pay income taxes; rather, the owners pay taxes on their share of the business income.  

Separation of business and personal property

If you have an LLC, you can buy real estate property in the LLC’s name. This is another way to separate your business life from your personal life. With an LLC, the LLC’s assets generally remain an obligation and concern of only the LLC.

Series LLCs for real estate investment in Texas 

Just like you can legally and financially separate your personal assets from your LLC’s assets in Texas, you can also legally and financially separate some of your LLC assets from your other LLC assets. This is called a series LLC, which allows you to divide your LLC’s property into different groups. If one group of properties in a series LLC has a legal or financial issue, a creditor or plaintiff against that property can’t collect against different groups of properties in the series LLC. 

Who should form a Texas LLC for their rental property?

An LLC can be a beneficial business structure for almost anyone looking to break into the rental property business. If you do start an LLC for a rental property in Texas, it’s usually easiest to start your LLC first, and then purchase the rental property through the LLC. If you’re already a property owner looking to collect rental income from what you currently own, it takes a little extra to put the property into the LLC. We’ll walk you through the general process below. 

How We Can Help

We have the resources to help you run a successful business from start to finish. You can receive guidance and support at the beginning with our LLC Formation Service. We can also help you hammer out the logistics of your business operations with our Business Plan service. Our Worry-Free Compliance Service has your back through the evolution of your business. This service provides alerts when a business compliance deadline approaches and handles two amendment filings per year for you. 

Disclaimer – The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.

FAQs

  • What are the benefits of creating an LLC for your rental property?

    The two big benefits of having LLCs for rental properties are personal protection from your LLC’s legal and financial issues and a pass-through taxation structure

  • How do you name the LLC for your rental property?

    As long as you follow a few rules under Texas law, you have a lot of freedom in naming your LLC. Your LLC name has to be distinguishable from taken names, can’t suggest that your business is engaging in unauthorized activities, and must include “limited liability company,” “limited company,” or their abbreviation.

  • If my home state is not Texas, do I need to register the Texas LLC as a foreign entity in my home state?

    You will likely need to register your Texas LLC as a foreign entity in your home state if you conduct its business there. It’s important to check with your home state’s authorities about their rules.

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