Yes. Buying real estate through a Limited Liability Company (LLC) is legal in Texas and is a common structure for real estate investors, landlords, and businesses. Texas law gives business entities broad authority to acquire, own, use, improve, lease, mortgage, and sell real property. However, forming an LLC does not eliminate every legal or financial obligation associated with owning property.
Can an LLC Own Real Estate in Texas?
Yes. Under the Texas Business Organizations Code, a domestic entity generally has the power to acquire, receive, own, hold, improve, use, and deal with property or an interest in property. It can also sell, convey, mortgage, pledge, lease, or otherwise dispose of property.
This means a properly formed LLC can appear as the owner on the deed rather than the individual member personally. The purchase documents should identify the LLC correctly, and the person signing for the company must have appropriate authority to complete the transaction.
Why Do Investors Buy Property Through an LLC?
One major reason is liability separation. An LLC is a separate legal entity, which can help separate business obligations from the personal assets of its members. If the LLC owns a rental property, for example, the LLC generally becomes the entity responsible for liabilities associated with its business activities, subject to important exceptions.
This protection is not absolute. Personal guarantees, fraudulent conduct, failure to maintain the entity properly, commingling of funds, or other circumstances can create personal exposure. An LLC should therefore be treated as a genuine business entity rather than simply as a name placed on a deed.
Can an LLC Purchase a Rental Property?
Yes. An LLC can purchase residential or commercial property and hold it as an investment. The LLC can generally enter into leases, collect rental income, pay property-related expenses, and sell the property.
Investors should keep the LLC’s financial records separate from personal accounts. Separate banking, accounting, contracts, insurance, and property records can help demonstrate that the LLC is actually operating as a separate entity.
Does the LLC Need to Be Formed in Texas?
Not necessarily. An LLC may be organized under Texas law or another state’s law. However, an out-of-state LLC that is transacting business in Texas may need to register with the Texas Secretary of State as a foreign entity. Texas Comptroller guidance distinguishes between Texas entities and foreign LLCs conducting business in the state.
The appropriate structure depends on the property, business activities, ownership arrangement, and the state in which the LLC was formed.
What About the Deed and Closing?
When an LLC purchases property, the deed should properly identify the LLC as the purchaser and future owner. The closing process may require documentation establishing the LLC’s existence and identifying the person authorized to sign on its behalf.
Texas law also provides mechanisms concerning the transfer and conveyance of real property owned by an entity. Entity authority and governing documents can therefore become important when buying, refinancing, or later selling the property.
Before closing, buyers should ensure that the title company, lender, and other transaction professionals have the correct legal name and entity documents.
Are There Tax Obligations?
Owning property through an LLC does not automatically make the property tax-free or eliminate other tax obligations. Property owned by an LLC can remain subject to applicable property taxes and other governmental requirements.
An LLC organized in Texas or having nexus in Texas may also have Texas franchise-tax reporting obligations. The Texas Comptroller states that taxable entities including LLCs organized in Texas or having nexus in Texas generally must file the required Public Information Report or Ownership Information Report annually, even when the entity does not owe franchise tax because of an applicable threshold or exemption.
The LLC’s federal tax treatment can also depend on its ownership and tax classification.
Are There Restrictions on Who Can Buy Through an LLC?
Yes. Texas has enacted restrictions concerning certain foreign governments, organizations, and individuals connected with designated countries. Property Code Section 5.253 prohibits specified entities and individuals from purchasing or acquiring certain interests in Texas real property, subject to statutory provisions and exceptions.
Therefore, the fact that a buyer uses an LLC does not automatically avoid restrictions that apply to the LLC’s ownership or control.
What Should Buyers Check Before Using an LLC?
Before purchasing property through an LLC, buyers should consider the company’s formation documents, operating agreement, ownership structure, authority to purchase, financing requirements, insurance, property taxes, and applicable registration obligations.
If financing is involved, the lender may also require personal guarantees or additional documentation. These requirements can affect the practical liability protection provided by the LLC.
Conclusion
Buying property through an LLC is legal in Texas. Texas law expressly permits business entities to acquire and own real property, and an LLC can purchase, lease, mortgage, manage, and sell real estate.
However, an LLC is not a complete shield against personal liability, nor does it automatically eliminate taxes, reporting duties, financing requirements, or restrictions on property ownership. Buyers should establish the LLC properly, maintain appropriate separation between personal and company affairs, and review the transaction with qualified legal and tax professionals before closing.
