LLC for Real Estate

Texas 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 to hold/own Texas real estate is ideal as it provides legal protections for both the real estate and the individual(s) who own the LLC.

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:

  1. Limited Personal Liability: A Texas LLC shields the business owner(s) from the liabilities that arise on the real estate.
  2. Asset Protection: A Texas LLC will insulate the assets it owns from the personal creditors of the LLC’s owner(s).
  3. Credibility: Using an LLC conveys professionalism and a sense of permanence.
  4. Simplicity: A Texas LLC is quick and straightforward to form and maintain.
  5. Perpetual Existence: Unlike a sole proprietorship, an LLC will remain in existence even after the owner dies.
  6. Tax Advantages: An LLC has many options as to how its profits are taxed.
  7. Privacy: If privacy is an issue, an LLC can help keep your name and address from being associated with the real estate.
  8. 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.
  9. Registered Statewide: An LLC is registered at the state level, unlike sole proprietorships, which are registered county by county.
  10. 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.

Holding your primary residence within an LLC is typically not advised for multiple reasons: (1) a Texas resident’s primary residence is already protected as their homestead from most creditors; (2) only an individual can sell the real estate without paying capital gains if the individual owns and resides in the primary residence for a certain amount of time; and (3) only an individual can apply for a homestead exemption and get a reduction in property taxes on their primary residence.

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?

The cost of a Texas LLC (for real estate or other purposes) is equal to a $300 filing fee plus the service fee of the person that prepares the LLC formation paperwork for you, if applicable. See what is included in our LLC formation flat fee.

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?

We recommend using a Texas LLC to hold Texas real estate due to the numerous benefits of using an LLC.

What is the best state to form an LLC for real estate?

The best state to form an LLC to hold real estate is almost always the state in which the real estate is located. If you use a non-Texas LLC to hold Texas real estate, you will likely need to register the foreign LLC in Texas. The filing fee for an Application to Register Foreign LLC in Texas is $750.

Should I form an LLC before you start investing in real estate?

It is not necessary to form an LLC before you start investing in real estate. Creating an LLC before acquiring the first property would be most efficient if you are serious about investing (or are confident you will be investing soon). If you acquire real estate and then create the LLC, you will want to transfer the real estate to the LLC once the LLC is formally registered.

How do I change from a sole proprietorship to a Texas LLC?

Suppose you operate a real estate investing business as a sole proprietorship and want to convert to an LLC operation. In that case, you create a new LLC and transfer the assets of the real estate investing business to the new LLC. You may also want the LLC to assume some of the sole proprietorship’s liabilities (i.e., contracts necessary to operate real estate investing).

Should I trademark the name of my real estate LLC?

Many real estate investors do not attempt to establish a brand but instead use an LLC to hold title to the real estate for asset protection purposes. The LLC's name is often as simple as the property's address. In this scenario, a federal trademark only adds a little value. If, however, you want to establish a brand or a tagline for your business like “we buy ugly houses®” a registered federal trademark is a valuable asset and will benefit you.

How to trademark the name of your real estate investing business.

You must submit a trademark application with the United States Patent and Trademark Office (USPTO) to register a federal trademark for the name of your real estate investing business. Before you apply for a federal trademark, you should first determine (1) if the name can be registered as a trademark (i.e., a merely descriptive name like “The Computer Repair Store” are typically not eligible) and (2) whether someone else is already using the business name.

Is a single-member LLC for real estate investing viable in Texas?

Because of the many benefits of an LLC, a single-member LLC is the most popular entity choice for a business with only one owner.

What are the possible business structures for real estate investing?

While the LLC is the most popular choice, real estate investing can be structured as a sole proprietorship, general partnership, limited partnership, or corporation.

Should you form an LLC for real estate investing, or is a DBA good enough?

A sole proprietorship DBA is a viable option for real estate investing. However, from a legal perspective, an LLC is the ideal business structure.

Is an LLC for real estate better than a corporation?

For tax purposes, an LLC is preferred over a corporation when it comes to holding real estate.

How do I start an LLC for real estate investing?

At a minimum, you will need to prepare and file formation paperwork at the state level. The LLC formation paperwork in Texas is called a Certificate of Formation and is filed with the Texas Secretary of State. After the formation paperwork is filed with the state, you’ll want to (1) prepare and execute a governing document (called the Company Agreement in Texas), (2) document the organizational meeting of the members, (3) prepare a membership transfer ledger, and (4) obtain an EIN aka federal tax ID.

Does real estate investing require a license?

Most states do not require real estate investors to have a special license or permit.

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?

We are obviously biased but there are many benefits to hiring an attorney to form an LLC. Read more about the pros and cons of hiring an attorney to form an LLC.

Zachary Copp, Esq.

Attorney at Copp Law Firm, PC

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 20 years and has personally formed over 3,500 Texas LLCs since 2015. He was recognized as a Rising Star by SuperLawyers® for seven straight years. See full bio →