Creating a Rental Property LLC in Oklahoma

Benefits of creating a rental property LLC in Oklahoma

There are three core reasons why LLCs are the most popular business form, especially for managing rental properties.

Liability Protection

First, an LLC protects its owners (i.e., members) from liability stemming from LLC activity. LLCs limit personal liability because they’re separate legal entities. An LLC provides a safety net around your personal assets and protects them from debts or lawsuits of the LLC. 

Pass-Through Taxation

In addition, for tax purposes, LLCs pass through all income to their members. That means that LLC income is taxed at the member’s personal tax rate instead of the federal or state corporate tax rate.

Separation of Personal and Business Property

Finally, an LLC owns its own property, thereby keeping members’ personal assets separate and distinct from LLC operations. In rental property ventures, this separation is extremely important given the long-term relationship between the LLC, the property, and any tenants. 

Series LLCs

In addition to these benefits, Oklahoma permits “series LLCs” which are ideal for owning rental properties. A series LLC consists of a master LLC with one or more subsidiary LLCs (i.e., series LLCs). In a series LLC, the master LLC owns each series LLC, and each series LLC owns a single rental property. This structure has two significant benefits. The first is making it easier for people to invest in your rental properties. Investors only need to invest in the master LLC to gain an interest in the business venture. Second, each rental property is isolated in its own LLC. Therefore, any negative event is isolated from all other series LLCs.

How to form an LLC for your Oklahoma rental property

When you are ready to form a rental property LLC in Oklahoma, you can get that done easily using our LLC Formation Services. Here are the steps:

Step 1: Form Your LLC

1. Choose your LLC’s name
2. Select a registered agent
3. File Articles of Organization
4. Create an operating agreement
5. Apply for an Employment Identification Number (EIN)

After you have completed the above, you’ll have an LLC that’s ready to own property and capture rental income.

Step 2: Transfer Property into Your LLC

If you already own the real property prior to forming the LLC, then you need to transfer the title on the local land records and adjust the financing with your lending institution. Together with these actions, we recommend you inform any existing tenants that the landlord is now the LLC, not you.

Step 3: Update Lease and Rental Agreements

To support this change make sure you amend any leases to reflect the right property owner. The adjustment of your relationship with your tenants is extremely important to support any limited liability protection from the LLC.

Who should form an Oklahoma LLC for their rental property?

The most common mistake in starting a small business is failing to clearly separate your personal property from the business’s property. Given the long-term nature of owning real property, together with the long-term relationship you may have with tenants — it’s very important to make this distinction between personal and business activity. A rental property LLC in Oklahoma provides this important legal partition. Owning rental property exposes you to ongoing risk in a way that selling widgets from a storefront does not. Therefore, placing your rental property into an LLC is a smart business practice.

Real estate transactions are complex and involve many parties and several legal documents. Therefore, we suggest you form your rental property LLC prior to buying any real estate. There are two reasons underlying our recommendation. First, if you need financing to purchase the property, it’s the buyer’s identity that will drive the availability, amount, rate, and term of any loan. Second, the deed to the property will ultimately need to be in the buyer’s name and that is best accomplished at the time of purchase. Putting the property in the business’s name from the start can get you better rates for your loans, and keep you from having to transfer the title later.

If you already have real estate investment property and want to transfer it to the LLC, or if you prefer to buy the real property in your name now and transfer it later, then you need to take a couple of extra steps. First, make sure that any transfer won’t affect the financing on the property. Check with your lender to get the transfer approved and then also to make any changes to the loan documents. After that step, you can transfer the deed from your name to the LLC on the local land records. Both of these steps are critical to placing the rental property into the LLC. As a last consideration, ask your tax professional if transferring the property will create a taxable event.

How We Can Help

We have a full suite of services to help you in this new adventure. We offer Formation Services, a Start Your LLC guide, a template to Write Your Business Plan, our Worry-free Compliance Services for legal compliance, and much more. Put simply, we have you covered all the way to opening up the doors to your new rental property LLC in Oklahoma.