To set up an LLC for rental property in Texas, file a Certificate of Formation with the Secretary of State for $300, adopt an operating agreement, get an EIN from the IRS, and then move the property into the entity by recording a new deed with the county clerk. The formation itself is the easy part. What trips landlords up is what comes after: the mortgage lender’s due-on-sale clause, the insurance update, and the daily habits that decide whether your liability shield actually holds when a tenant sues.
Pick a Name That Will Clear the State’s Filter
Your LLC name must include “Limited Liability Company,” “Limited Company,” or an abbreviation such as “LLC” or “L.L.C.”1State of Texas. Texas Business Organizations Code – BUS ORG 5.056 It also has to be distinguishable from every other entity already on file, including active corporations, partnerships, foreign entities registered in Texas, and names someone else has reserved.2State of Texas. Texas Business Organizations Code Section 5.053 Search the Secretary of State’s online database before you file.3Office of the Texas Secretary of State. Name Filings FAQs Names that are too close to an existing entity come back for revision.
File the Certificate of Formation
Form 205, the Certificate of Formation, is what actually creates the LLC.4Office of the Texas Secretary of State. Form 205 – Instructions for Certificate of Formation – Limited Liability Company The filing fee is $300, payable to the Secretary of State.5Texas Secretary of State. Business Filings and Trademarks Fee Schedule You can file online through SOSDirect or SOSUpload, or mail two copies with a check.6Office of the Texas Secretary of State. SOSDirect – Online Searching and Filing The state returns a stamped Certificate once approved. Keep it. You’ll need it for the bank, the insurer, and the county clerk when you record the deed.
Registered Agent
Every Texas LLC must name a registered agent with a physical Texas street address where legal papers can be served during business hours. A mailbox or answering service does not qualify.4Office of the Texas Secretary of State. Form 205 – Instructions for Certificate of Formation – Limited Liability Company You can serve as your own agent if you have a Texas address and are reliably available, but many landlords pay a professional service (roughly $100 to $250 per year) to keep a home address off the public record.
Member-Managed or Manager-Managed
Form 205 asks you to pick a governance structure. In a member-managed LLC, the owners run operations directly, which is the usual choice for small landlords. In a manager-managed LLC, the owners appoint one or more managers to handle business affairs, which suits passive investors. Either way, the names and addresses of your initial members or managers go on the form and become public record.7Office of the Texas Secretary of State. Certificate of Formation – Limited Liability Company – Form 205
Write an Operating Agreement
Texas law does not require a written operating agreement (the statute calls it a “company agreement”), but skipping one is a mistake.8State of Texas. Texas Business Organizations Code – BUS ORG 101.052 Without one, state defaults fill the gaps, and those defaults may not match what you and any co-owners intended.
For a rental property LLC, at a minimum cover:
- Ownership percentages and how profits and losses are split.
- Capital contributions each member has made and whether more can be required.
- Who has authority to sign leases, hire contractors, and approve spending.
- How and when rental income gets distributed.
- What happens if a member wants to sell their interest or dies.
Even a single-member LLC benefits. The agreement reinforces the separation between you and the entity if someone ever challenges your liability protection, and banks and insurers routinely ask to see it.
Get an EIN and Understand How You’ll Be Taxed
The IRS does not treat your LLC as a separate tax entity by default. A single-member LLC is a “disregarded entity,” so rental income and expenses flow through to your personal return on Schedule E.9Internal Revenue Service. Single Member Limited Liability Companies A multi-member LLC is taxed as a partnership and files its own Form 1065, issuing K-1s to each member.10Internal Revenue Service. Limited Liability Company (LLC) Either can elect S-corp or C-corp taxation with Form 8832, though that rarely fits a straightforward rental operation.
A single-member LLC with no employees is not technically required to have an Employer Identification Number, but you’ll need one in practice: banks require it to open a business checking account, and Texas may require it for state tax filings.9Internal Revenue Service. Single Member Limited Liability Companies Apply free on the IRS website using Form SS-4. Multi-member LLCs always need one.
Transfer the Property Deed to the LLC
The LLC does not own the rental until you execute and record a new deed. Most Texas landlords use a general warranty deed, which guarantees clear title free of liens. A special warranty deed, which covers only the period you have owned the property, also works and is common for transfers to your own entity.
Sign the deed, have it notarized, then file it with the county clerk in the county where the property sits. Recording fees vary by county; in Dallas County the first page is $25 with $4 for each additional page, and other counties follow similar structures. The clerk records the ownership change and returns the original after processing.
Wait until you have the stamped Certificate of Formation in hand before signing the deed. A deed transferring property to an entity that does not yet legally exist creates title problems that are expensive to fix later.
The Due-on-Sale Clause
This is where landlords get blindsided. If the property has a mortgage, transferring title to an LLC can trigger the loan’s due-on-sale clause, letting the lender demand full repayment. Federal law protects certain transfers (adding a spouse to title, moving property into a living trust where the borrower stays a beneficiary), but transfers to an LLC are not on the protected list.11Office of the Law Revision Counsel. 12 U.S. Code 1701j-3 – Preemption of Due-on-Sale Prohibitions
In practice, many lenders do not enforce the clause on a single rental transfer as long as the loan stays current, but they have the legal right to. Contact your lender before the transfer and get written confirmation. Some will approve the change with a simple assumption agreement; others will require refinancing into a commercial loan under the LLC’s name.
Update Your Insurance
Once the property is in the LLC’s name, your landlord policy needs to reflect the new ownership. At minimum, the LLC should be listed as the named insured or an additional insured. If it is not on the policy and a tenant sues, the insurer can deny the claim on the grounds that the policyholder no longer owns the property.
Some carriers will add the LLC to an existing personal-lines landlord policy with little fuss. Others, especially for multi-unit properties, require a commercial policy that costs more but may offer broader coverage. Expect to provide the Certificate of Formation and a list of members. Do not let the deed transfer and the insurance update sit out of sync, even briefly.
File the Franchise Tax Report Every Year
Every Texas LLC must file a Franchise Tax Report and a Public Information Report with the Comptroller of Public Accounts by May 15 each year.12Texas Comptroller of Public Accounts. Franchise Tax The Public Information Report keeps the state’s records of your members or managers current.
Most small rental LLCs owe no franchise tax because annualized revenue falls under the $2,650,000 no-tax-due threshold.12Texas Comptroller of Public Accounts. Franchise Tax Owing nothing does not excuse you from filing. You still submit a No Tax Due Report and the Public Information Report every year.13Texas Comptroller of Public Accounts. Texas Franchise Tax Public Information Report and Ownership Information Report
Miss the filings and the Comptroller can forfeit your LLC’s right to transact business in Texas after a 45-day warning. A forfeited LLC cannot sue or defend itself in Texas courts, and each member becomes personally liable for the entity’s debts, which erases the reason you formed it.14Texas Comptroller of Public Accounts. Franchise Tax Account Status
Operate the LLC Like a Real Business
Formation is only half the job. If you do not run the LLC as a separate entity, a court can pierce the corporate veil and hold you personally liable. Texas sets a high bar on contract claims (a creditor must show the member used the LLC to commit actual fraud for personal benefit), but courts weigh a cluster of factors, and careless habits add up.
The biggest mistake is commingling funds. Depositing rent into your personal account, paying LLC repairs with a personal card, or moving money back and forth without documentation blurs the line between you and the entity. Open a dedicated LLC bank account the day your EIN arrives and route every dollar of rental income and expense through it.
Two more habits that reinforce the separation:
- Sign in your capacity as a member or manager, not personally. A lease should read “ABC Properties LLC, by [Your Name], Manager.”
- Document any loan between you and the LLC with a promissory note and repayment terms. Undocumented cash movements look like the funds belong to both of you interchangeably.
Keep records current: informal meeting minutes even for a single-member LLC, annual reports on time, and an operating agreement that reflects current circumstances.
Series LLCs for Multiple Rentals
If you own several rentals or plan to, Texas allows a series LLC. Instead of forming a separate LLC for each property (each with its own $300 filing, registered agent, and franchise report), a series LLC lets you create individual “series” under one parent entity. Each series can hold its own property, its own bank account, and its own liabilities independently.8State of Texas. Texas Business Organizations Code – BUS ORG 101.052
The appeal is direct: if a tenant wins a judgment against one property, only that series’s assets are at risk. You file one Certificate of Formation specifying that the LLC may establish one or more series, then set the series up through the operating agreement.
Not every lender, title company, or insurance carrier is comfortable with the structure, which can add friction when financing or insuring individual properties. The liability walls between series only hold if you keep each series’s records and finances genuinely separate.