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Should I form a Limited Liability Company (LLC) for my rental property?

On Behalf of | Aug 11, 2021 | Business, Real Estate |

What is a Limited Liability Company (LLC)? A limited liability company is a type of business structure. Although the focus of the LLC is to protect personal assets, there are also more benefits. There are different types of LLCs to choose from to best suit the needs of an individual and his/her goals. LLC options can differ from state to state. Here are a few LLC options Texas provides.

  1. Single Member LLC/Sole Proprietorship – A single owner.
  2. Member-Managed LLC – Are managed by the members of the LLC.
  3. Manager-Managed LLC – Are managed by its managers, not its members. To understand whether to use a member-managed LLC or manager-managed LLC, please feel free to contact us.
  4. Series LLC – Series LLCs are business’ that can designate rights to smaller cells (series) which may include members, managers, assets, interests.

Consulting with a real estate and business attorney regarding which LLC is the best fit is critical to a solid foundation. A landlord that owns a property as an individual is at risk of losing his/her personal assets due to a lawsuit. However, if an LLC is formed, the risks are decreased. Generally, the assets that are owned by the LLC are at risk. So, if a tenant decides to sue a landlord with an LLC in place, the rental property should be the only asset at risk excluding the landlord’s personal assets.

Pass through taxation is another benefit to forming an LLC. This means that the income from the business (rental property) will go to the owner’s individual tax return instead of double taxing. Contact us for more information about LLC formation.

After the LLC is formed, a deed may be necessary in order to transfer the property into the name of the entity. If you do not want to form an LLC there are other options that you have in terms of protecting your assets. We welcome you to contact us at 713-572-4900.



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