Why do some online resources state that real estate investors should set up their LLC in states like Nevada, Wyoming, and Delaware? Answer: Maybe because they are not Texas lawyers and do not know any better. What are the top jurisdictions to establish a real estate LLC? Sometimes it is the state that you live in and sometimes not. These online companies that do online LLC formation often do not understand the nuances of various state laws when it comes to owning rental real estate in an LLC. Real estate investing can be complex. Consider the California real estate investor who set up a Wyoming LLC to own a Texas rental. This person hires an online company and thinks that it is set up just fine, all until it is not. In this hypothetical situation, the property was held in the name of the Wyoming LLC and the tenant paid rent to the Wyoming LLC. All was great until the tenant stopped paying rent and also started violating the deed restrictions for the neighborhood where the property was located.
The landlord / real estate investor will then want to evict the tenant for not paying rent. Guess what can happen now. The Tenant’s lawyer that knows something about business law and who offers legal support to residential landlords in tenant disputes will likely point out to the court that the LLC was not registered in Texas. For this reason, the LLC is not permitted to bring or defend against a lawsuit until the LLC is registered. As the result, the Wyoming LLC could not evict the tenant. The court could then throw out the case. As a result, the tenant continued to live at the real property without paying any rent. What does the real estate investor need to do? Now he needs to quickly hire a Texas real estate or business lawyer to hurry and register the LLC in Texas. The investor may also have to pay past due or owed franchise fees or other fees to the state of Texas. This problem is very common when it comes to real estate investors looking to own real estate outside their home states. Investors form entities such as LLCs in states for the wrong reasons. These investors do not realize that it may end up being more complicated than originally expected. This is why it is important to discuss the details of business formation with a Texas business lawyer.
We generally have a strong recommendation for filing the original entity in Texas, when the real estate investment is in Texas. In the short and long run, a Texas filing may be the best choice in comparison of what a real estate investor may think might have accrued from registering initially in Nevada, Wyoming, or Delaware. When you are working with a business lawyer that knows how to form and organize real estate structures, make sure that you are working together to discuss the reasons behind creating the LLC in Texas, especially if that is where the property is located. Do not cut financial corners by hiring an online company that is not based out of Texas or if they do not give you a Texas lawyer to work with directly. You are welcome to call The Weaver Law Firm at 713-572-4900 to discuss your real estate investing.