Creating a Rental Property LLC in New Mexico

Benefits of creating LLCs for rental properties in North Carolina

Liability Protection

One of the things that makes LLCs so attractive to real estate investors is the liability protection they offer. As the LLC owner or member, your personal assets are protected and can’t be seized to satisfy a financial or legal obligation of the LLC. Only the amount you invest into the business is at stake. 

There are some limited exceptions. For example, you can be held personally liable if you:

• Directly injure someone
• Personally guarantee a business loan on which the LLC defaults
• Intentionally do something illegal, fraudulent, or reckless
• Fail to treat the LLC as a separate business entity by commingling business and personal assets

The liability protection has limits, but as long as you conduct your business appropriately, you’ll benefit from the safety net that the LLC provides. 

Pass-Through Taxation

LLCs don’t pay their own taxes as corporations do. In fact, the IRS doesn’t view LLCs as separate legal entities for tax purposes. Rather, business income passes through to the LLC members, who report their portion of the income and losses on their personal income tax returns. Even though the LLC itself doesn’t pay taxes, it still needs to file a yearly informational return with the IRS. 

Separation of business and personal property

By forming a New Mexico real estate LLC, you can keep personal and business property separate. This separation protects your personal assets. It allows you to put just enough money into the LLC to fund its operations while protecting the rest of your assets from the LLC’s potential creditors or lawsuits. 

By separating business and personal property, it’s also easier to provide a paper trail for the IRS if you want to claim business expense deductions. 

Series LLCs for real estate investors in New Mexico

A series LLC is a unique structure that allows you to create individual “series” within the LLC. Each series has its own membership interests, assets, debts, etc., and liability is limited to each individual series. Some real estate investors choose to set up a series LLC and designate a series for each property they own.  

Although New Mexico doesn’t recognize series LLCs, it’s important to know what they are if you purchase property in a state that allows you to take advantage of this unique business structure. 

What to know before creating a rental property LLC in New Mexico

There are some important benefits to forming an LLC for property owners in New Mexico.

How to form an LLC for your New Mexico rental property

Here is the step-by-step description of what you need to do to set up an LLC for a rental property in New Mexico. 

Step 1: Name Your New Mexico LLC

Choosing a name for your LLC must be done carefully. Not only should the name reflect the nature of your business, but it also needs to meet state requirements. For example, the name can’t currently be in use by another business. With our Name Check and Reservation Services, we can see if the name you want is available and reserve it while you get the rest of your documents together and write your business plan.

Step 2: Appoint a Registered Agent

New Mexico requires all LLCs to have a registered agent available to accept important documents on behalf of the LLC. If you need a New Mexico Registered Agent, we’ve got you covered. 

Step 3: File New Mexico Articles of Organization

To formally create your LLC, you must file Articles of Organization with the New Mexico Secretary of State’s Office. Let us do the work for you and file your LLC paperwork. Once the office accepts your articles and filing fees, your LLC is official! 

Step 4: Create an Operating Agreement

It’s so important to adopt an Operating Agreement for your LLC because it sets the rules for how your business is run. This document governs everything from voting procedures to membership interests to profit and loss sharing. If you’re not sure where to start, check out our Operating Agreement templates. 

Step 5. Apply for an Employment Identification Number (EIN)

An EIN is essentially your LLC’s social security number. It’s how the IRS identifies your business, and it’s required to open a business bank account, get financing, and hire employees. You can apply for an EIN on the IRS’s website or let us apply for you with our EIN Service. 

Transfer title of the property to LLC

If you purchased an investment property under your name, you’ll need to transfer the title to the LLC. To do this, you must complete a new deed and file it with the local county clerk’s office. Fortunately, New Mexico doesn’t impose a property transfer tax, but there are recording fees. 

Who should form a New Mexico LLC for their rental property?

You don’t need to be a real estate tycoon to form an LLC. A rental property LLC in New Mexico is a good idea for anyone looking to establish or continue renting property for either vacation or residential purposes. 

Keep in mind, it’s easier to form an LLC before purchasing your investment property. If you have the LLC in place, then you can buy the property and file the deed under the LLC’s name. This avoids the extra paperwork of retitling the property, which we’ll talk about more below. 

Inform Lender

If the property is subject to a mortgage, it’s important to inform the lender of the ownership change. When you retitle your property, it may impact things like the interest rate. 

How We Can Help

The world of real estate investing is potentially lucrative, but also risky. Do what you can to protect yourself and consider creating a New Mexico real estate LLC. With all of the products and services we offer, we have what you need to get started and succeed. With our online New Mexico LLC Formation Service, we make it even easier by doing the work for you. You’ve got this!