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Christine B, Other/Just Looking in Texas

Using an LLC to purchase rental property

Asked by Christine B, Texas Mon Mar 17, 2008

If I wanted to purchase rental property under an LLC, are there any special situations that I should be aware of inTexas? Does the LLC have to be formed in Texas?

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Christine,

I have to buy my properties in my name because most lenders won't loan to a LLC. As soon as I purchase the property, I then form an LLC using the street address of the property, for example 123 Main St, LLC. In Georgia, you can create an LLC for $100 online. I then title the property into the LLC's name at the courthouse. This costs $10 in my county. In the meantime I purchase insurance in my name with the LLC as an additional party insured. The hardest part is finding an insurance company that will cover LLCs even as a 2nd insured. Be prepared for a slightly higher insurance rate.

If you have questions or are the least bit unsure of something, please contact a real estate attorney to help you with this. It doesn't cost much. Good Luck.
3 votes Thank Flag Link Wed Apr 2, 2008
Christine - The LLC does not have to be formed in Texas. My business partner and I have two California-formed LLC's and have purchased investment property in Texas. There are other considerations to using an LLC to purchase the property. If you are financing, as Kevin indicated earlier in the string, most lenders will require at least two years of history from your LLC. You will also need to supply personal financial statements for each of the LLC principals, tax returns, and property proformas for them to evaluate. In addition, because an LLC is the borrower (note: the principals / owners will still have to personally guarantee the loan) you'll be working with a Commercial Lender which has different requirements and lending terms than Residential Lenders require. With the tightening of the financial markets, we've found that most lenders require at least a 35% down payment, a debt-cover-ratio (DCR) of 1.10-1.15, and will use a 20 year (or 25 year if you are lucky) amortization period on the 10 year loan. If the DCR is under 1.10, they may still fund the loan if the principal(s) are strong financially. If you pursue the investment on your own and then transfer title to the LLC, you might want to make sure your lender is OK with it. I've had a couple lenders tell me that they would call the loan upon a title transfer. Good luck with your investing!
1 vote Thank Flag Link Sat Apr 5, 2008
Why not elect the LLC as an S Corp and purchase using the S Corp for some protection, rather than purchasing in your own name? Also, why not hold the LLC in Nevada since California has an $850 minimum tax? http://sizuservices.blogspot.com
Flag Mon Jul 23, 2012
I forgot about part two of your question. NO, the LLC does not need to be formed in Texas. If you want to get real paranoid, you can form it in Nevada as they do not disclose the members of the company like other states do, so it makes it even more tough for someone to find you. However, with the internet and $40, you can find anyone. Or if you have some brains and a little time, all you have to do is look for the tax assessor in the area, put in the address and you get the owner's name and mailing address. If the property is titled in the LLC, the LLC will come up on the tax assessor, but it would have the mailing address.
San Antonio is a great place to invest. They are constantly making the news about best place to ... (fill in the blank with retire, raise a family, invest, etc). Jobs are constantly added in large numbers (Toyota, Washington Mutual, Military bases, etc). Wages have stayed low for most of the industry in San Antonio which is why the housing market remains low (compared to the national average as well as your other large cities in the US), however the demand for housing remains high and several people rent, so the rents have gone up. It is not uncommon for an investor to buy a property and have it cash flow from day one. On top of everything else, the laws are actually geared toward property owners (not the case in Washington state where a tenant can actually remain living in your rental for a year while you go through court to evict them without paying you a dime in rent).
I have moved my rental investments to San Antonio and enjoy traveling there (tax write off) to view my rentals or "shop" for more.
1 vote Thank Flag Link Tue Apr 1, 2008
Cindi, Nevada requires that you file annual a members/manager list. It does not require the members to be filed if you indicate that the LLC as managed by Manager. The manager does not need to be a member.
Flag Wed Jan 29, 2014
"Nevada as they do not disclose the members of the company" As of 2005 this is no longer a true statement. Nevada must file annually the list of it's LLC members and this is public information
Flag Mon Feb 4, 2013
The reason you would want an LLC is the same reason your lender may not want you to. Kevin answered well regarding teh legalities, but truth be told, trying to buy as an LLC would be tough. Lenders own a lot of propery right now that were investment properties just a few years ago. They are very tough on investors. You would have to have established credit and a history of property ownership in teh LLC before they would lend... which would be tough to do to buy your first home :-) Buy as an individual, swith it into the LLC, build the history, and go from there. With that said, it is a GREAT time to buy. Find a realtor who knows investments in San Antonio... wait a minute...that's what I do...
Web Reference: http://IsellSanAntonio.com
1 vote Thank Flag Link Tue Apr 1, 2008
These are legal questions. You should consult with a real estate attorney. In all likelihood, others who have given this advice are giving the only advice for which they are qualified.

I'll be happy to advise and help you with your search and negotiations when you are ready to find investment properties.
1 vote Thank Flag Link Sun Mar 23, 2008
Your lender will most likely require the LLC to be formed and running (with income, credit, etc) for a minimum of two years. If you are creating the LLC to protect your investment in real estate, then you have to purchase the property yourself and transfer title to the LLC at closing (simultaneously). This creates another attorney fee for that transfer and can cause you problems with the homeowners insurance. Your mortgage will still be in your name, but title will be in the LLC.
This should protect you as well as the property, which is why the LLC would be formed.
1 vote Thank Flag Link Fri Mar 21, 2008
Nothing special that needs to be done... It does not have to be formed in Texas.

The only other considerations to be aware of are what your lender requires if you are going to get a loan on the property... If you are paying cash... you are all good!
0 votes Thank Flag Link Fri Dec 17, 2010
In Georgia, you purchase the property under your name, and then move it to the LLC for protection of your other property and finances. Many people have an LLC for each house. The cost is as little as $395 to create. Interesting to note, you have to move it back to your name to sell or refinance.
0 votes Thank Flag Link Wed Apr 2, 2008
The best structure for you depends upon your financial status, tax bracket and other assets. Realtors are well equipped to provide real estate info, but no tax or legal advice. Your best source for this advice would be an attorney and tax advisor.
0 votes Thank Flag Link Mon Mar 17, 2008
Deborah Madey, Real Estate Pro in Red Bank, NJ
MVP'08
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Christine....

I would suggest you talk with a Real Estate attorney and a CPA to get the best advice on the purchase of property.
0 votes Thank Flag Link Mon Mar 17, 2008
Pam Winterba…, Real Estate Pro in San Ramon, CA
MVP'08
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You truly need to speak with a professional CPA who specializes in real estate, and investment properties.

I am a Dallas real estate agent who works with investors across the country I also invest HOWEVER all investors have their own business plan and etc how they report taxes, each person is different.
Web Reference: http://www.lynn911.com
0 votes Thank Flag Link Mon Mar 17, 2008
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