LLC for Real Estate
A limited liability company (LLC) is a type of entity that combines a corporation's liability protection with the tax benefits and operational flexibility of a partnership or sole proprietorship.
Using a Texas LLC for holding Texas real estate is ideal as it provides legal protections for both the real estate and the individual owner(s).
Benefits of Using an LLC for Real Estate
LLCs are the most popular entity type because they provide so many benefits. The top 10 benefits of using an LLC for real estate are:
- Limited Personal Liability: A Texas LLC shields the business owner(s) from the liabilities that arise on the real estate.
- Asset Protection: A Texas LLC will insulate the assets it owns from the personal creditors of the LLC’s owner(s).
- Credibility: Using an LLC conveys professionalism and a sense of permanence.
- Simplicity: A Texas LLC is quick and straightforward to form and maintain.
- Perpetual Existence: Unlike a sole proprietorship, an LLC will remain in existence even after the owner dies.
- Tax Advantages: An LLC has many options as to how its profits are taxed.
- Privacy: If privacy is an issue, an LLC can help keep your name and address from being associated with the real estate.
- Ownership Flexibility: An LLC can have only one owner or perhaps many. All or part of an LLC can be sold, as can its assets.
- Registered Statewide: An LLC is registered at the state level, unlike sole proprietorships, which are registered county by county.
- Operate Nationwide: An LLC is formed in one state, but it can be used nationwide.
Disadvantages of using an LLC for real estate
A disadvantage to using an LLC for real estate would be one of the relative advantages of the other options, like a sole proprietorship (when compared to the LLC). For example, a sole proprietorship does not require any filing/filing fees unless you use an assumed name.
Another disadvantage to using an LLC can be higher interest rates. Loans to individuals can often be federally guaranteed, which means lower risk for the lender and, therefore, lower interest rates. The federal government does not typically guarantee loans to LLCs. For this reason, clients often purchase real estate in their names and then transfer it to their LLC after the original closing for asset protection purposes.
Traditional LLC(s) vs. Series LLC for Real Estate
The main benefits of using an LLC of any type are (1) limited liability for the individual owner(s) and (2) protecting the property(ies) from the creditors of the individual owner. A Series LLC in conjunction with a protected series per property would insulate each property from the liabilities of the other. As such, a Series LLC with multiple protected series looks a lot like using multiple LLCs in that the properties are protected from each other.
Read more about the Texas Series LLC.
Frequently Asked Questions
How much is a Texas LLC?
How long does it take to form a Texas LLC for real estate?
The amount of time it takes to form a Texas LLC depends on a couple of variables: Who is filing, what filing method is used, and how long the state is taking to process the LLC formation paperwork.
We file the LLC formation paperwork (i.e., the Certificate of Formation) via SOSDirect, resulting in the state's quickest processing time. We typically prepare and file the Certificate of Formation on the same day we receive our client’s request or the next business day if the request is received late in the day. The Secretary of State takes around four business to process LLC formation paperwork filed via SOSDirect. See a detailed outline of our Texas LLC formation process and resulting turnaround time.
Should I use an LLC to hold real estate?
What is the best state to form an LLC for real estate?
Should I form an LLC before you start investing in real estate?
How do I change from a sole proprietorship to a Texas LLC?
Should I trademark the name of my real estate LLC?
How to trademark the name of your real estate investing business.
Is a single-member LLC for real estate investing viable in Texas?
What are the possible business structures for real estate investing?
Should you form an LLC for real estate investing, or is a DBA good enough?
Is an LLC for real estate better than a corporation?
How do I start an LLC for real estate investing?
Does real estate investing require a license?
Should I create a 2nd LLC for real estate management?
There are benefits to forming an additional LLC for property management. If you separate ownership and management/operations, the property-owning LLC can’t be sued for management/operations issues; therefore, the real estate is better protected.
The property management LLC would sign leases, hire contractors for repairs, etc. If a tenant or contractor dispute arises, the property management LLC would be the defendant (not the property holding LLC). If a judgment is rendered against the property management LLC, the real estate is not at risk (only the property management LLC’s assets).
Should I hire an attorney to form my LLC?
Zachary Copp, Esq.
Mr. Copp is a graduate of the University of Texas at Austin and the founder of the Copp Law Firm. He has been licensed in Texas for 19 years and has personally formed over 3,000 Texas LLCs since 2015. He was recognized as a Rising Star by SuperLawyers® for seven straight years. See full bio →