Final Steps before commiting to my first out of state rental.
Member since 2024 · 33 posts · 43 votes
Final Steps before commiting to my first out of state rental.
Most Popular Reply
Lender · Austin, TX · Member since 2021 · 448 posts · 441 votes
2yQuote from @Miguelli Fernandez:
Been doing a lot of research and prep work and feeling ready to start putting offers. Few questions still.
1. If I use a HELOC or HELOAN from my primary residence to buy a rental, will the mortgage interest be able to offset the rental's income? (I have read it can't be which is why I'm at this point considering just going with a 30 year conventional loan and putting the 15% or 25% for SFH or MFH.
2. I'm based in California but plan to buy rentals in Cleveland Ohio. Where should I form my LLC? California or Ohio? Getting conflicting info.
California LLCs are a nightmare. Most attorneys in California advise against them as they cost about $800/year, and you also have to transfer a property into your personal name before a sale, so they do not help with anonymity.
I suggest an Ohio LLC nested within a Wyoming LLC (set up through a registered agent service). If you are unfamiliar with the process, I would reach out to a lawyer to set you up correctly.
50 Replies
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes2y
Quote from @Dustin Tucker:
1st I'm not an attorney, so I can't give advice, but if I was you, I would form my LLC in Nevada or Wyoming, I would want to form my LLC in a state where there is not tax on the LLC. You can register any State's LLC in any other state with a foreign Entity Registration with the state you want to do business in.
If you get a HELOC on your personal residence couldn't you claim the interest on against your personal income taxes?
Also, for purchasing your rental property you can get 80% financing very easily with no Tax Returns via a DSCR loan, depending on your credit, and Down payment, you could see rates from 5.99-8.99%. Personally, I really like the BRRR (Buy, Fix, Rent, Refinance Repeat) model, which is to buy a property fix it up, rent it out and refinance it and do another one. This accomplishes 2 things, 1 you are gaining instant equity, 20-30% each time you complete the process. 2. Financing for 1-4 units is saturated, and there are hundreds of lenders in that market. Once you get into the 5+ unit properties, the lending market evaporates, there are very few lenders in this market and the rates are 1-1.5 higher than in the 1-4 unit market, if you are thinking bigger, the 10+ unit financing is best case 65% LTV, where the 1-4 unit market is 80% LTV for Stabilized rent ready properties, and if you are buying a fixer upper you can usually get 90% of purchase and 100% of rehab. Hope this helps.
Filing the LLC in a random state like Nevada or Wyoming isn't some magical loophole that keeps him from paying tax. He's doing business in Ohio and California. Both Ohio and California are going to get their piece.
- 2yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
I hear you, and it might be tough to see lots of properties. I just want to encourage OP to actually go there in person and look at some. A lot of CA folks seem to want to shop only on Zillow, see 0, buy something, meet no one that is going to be supporting them, and then immediately lose money and get discouraged.
- Real Estate Broker · NY · Member since 2020 · 70 posts · 27 votes2y
@Travis Timmons
What issues are you having managing properties out of state?
- Real Estate Broker · NY · Member since 2020 · 70 posts · 27 votes2y
@Nicholas L.
I’m having a hard time with ppl telling him it’s a bad idea. I buy all my properties out of state and manage them myself. Conventional loan, My very first one was sigh unseen. I didn’t see it until it was time to meet with the contractors. Between the realtor, face time and the inspector you know what you’re buying. This is my strategy for each one. So it can and has been done.
- Member since 2024 · 1 post · 0 votes2yIf you’re considering hard money loans for buying distressed properties, some lenders, not all, will only work with LLC’s that are based in the same state as them. Something to consider down the line if you plan to scale this Ohio based company [LLC]
Quote from @James Wise:
Quote from @Dustin Tucker:
1st I'm not an attorney, so I can't give advice, but if I was you, I would form my LLC in Nevada or Wyoming, I would want to form my LLC in a state where there is not tax on the LLC. You can register any State's LLC in any other state with a foreign Entity Registration with the state you want to do business in.
If you get a HELOC on your personal residence couldn't you claim the interest on against your personal income taxes?
Also, for purchasing your rental property you can get 80% financing very easily with no Tax Returns via a DSCR loan, depending on your credit, and Down payment, you could see rates from 5.99-8.99%. Personally, I really like the BRRR (Buy, Fix, Rent, Refinance Repeat) model, which is to buy a property fix it up, rent it out and refinance it and do another one. This accomplishes 2 things, 1 you are gaining instant equity, 20-30% each time you complete the process. 2. Financing for 1-4 units is saturated, and there are hundreds of lenders in that market. Once you get into the 5+ unit properties, the lending market evaporates, there are very few lenders in this market and the rates are 1-1.5 higher than in the 1-4 unit market, if you are thinking bigger, the 10+ unit financing is best case 65% LTV, where the 1-4 unit market is 80% LTV for Stabilized rent ready properties, and if you are buying a fixer upper you can usually get 90% of purchase and 100% of rehab. Hope this helps.
Filing the LLC in a random state like Nevada or Wyoming isn't some magical loophole that keeps him from paying tax. He's doing business in Ohio and California. Both Ohio and California are going to get their piece.
- 2yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
i totally agree with you - i have out of state rentals myself. one i self-manage. i just look for risk in posts - since I don't know the people in person i have to go by what they post, and so here i saw the same thing @Travis Timmons did - 'stacking' risk factors:
-from California
-probably chose Cleveland solely because of the price point and not because of any market knowledge
-asked about borrowing 100% and asked about forming an LLC
-did not indicate anything about strategy
to be very clear - these are fine questions that OP is asking, and out of state investing is a fine strategy. it's just higher or lower risk depending on who you are and what you're trying to accomplish. and with nothing else to go on, this one seemed on the higher risk side.
Quote from @Miguelli Fernandez:
Been doing a lot of research and prep work and feeling ready to start putting offers. Few questions still.
1. If I use a HELOC or HELOAN from my primary residence to buy a rental, will the mortgage interest be able to offset the rental's income? (I have read it can't be which is why I'm at this point considering just going with a 30 year conventional loan and putting the 15% or 25% for SFH or MFH.
2. I'm based in California but plan to buy rentals in Cleveland Ohio. Where should I form my LLC? California or Ohio? Getting conflicting info.Whos doing your walk through ? Whos giving you a reno budget? Who is telling you its a good deal? PLEASE do not say your realtor, they are NOT part of your team. I see many OOS investors overpaying, just because it looks good on paper,
Quote from @Miguelli Fernandez:
Quote from @Jimmy Lieu:
Quote from @Miguelli Fernandez:
Been doing a lot of research and prep work and feeling ready to start putting offers. Few questions still.
1. If I use a HELOC or HELOAN from my primary residence to buy a rental, will the mortgage interest be able to offset the rental's income? (I have read it can't be which is why I'm at this point considering just going with a 30 year conventional loan and putting the 15% or 25% for SFH or MFH.
2. I'm based in California but plan to buy rentals in Cleveland Ohio. Where should I form my LLC? California or Ohio? Getting conflicting info.Hi Miguelli! If you're investing out-of-state, you should have your core team that you can rely on to answer these questions before making any offers. Your realtor should be able to connect you with their network and help you with these. Happy to connect and answer your questions.
So far my agent has been great but and getting some deals off market that look decent on paper. However when I choose a property im considering putting and offer on, I run into issues like existing tenant or vacant with repairs needing to be made before rent ready which is essentially what I’m looking for to force the equity myself.
The problem is that I’m unable to find PM or contractors willing to translate what the inspections are showing, what needs to be dealt with, and for how much before closing.How can I make a decision to purchase when I can’t talk to anyone willing to help BEFORE I’m already commited?
I know dozens of investors from around the world that have been and are still buying in the Cleveland markets. Heck, I live in FL and do all my biz there. 100s and 100s of deals,
- Member since 2024 · 33 posts · 43 votes2y
Quote from @Nicholas L.:
i totally agree with you - i have out of state rentals myself. one i self-manage. i just look for risk in posts - since I don't know the people in person i have to go by what they post, and so here i saw the same thing @Travis Timmons did - 'stacking' risk factors:
-from California
-probably chose Cleveland solely because of the price point and not because of any market knowledge
-asked about borrowing 100% and asked about forming an LLC
-did not indicate anything about strategy
to be very clear - these are fine questions that OP is asking, and out of state investing is a fine strategy. it's just higher or lower risk depending on who you are and what you're trying to accomplish. and with nothing else to go on, this one seemed on the higher risk side.
Your responses have all been very appreciated as you seem to be looking to mitigate catastrophe for strangers starting out.
So far, it's been 1 step forward and 2 steps backwards. I did some research on BP via reviews on realtors that were in the Cleveland market and met on teams/zoom and chose the one I felt was most trustworthy solely based on volume of good reviews, some social media presence, and other factors that provided value to me.
I got into investing after reading about section 8. My strategy is to find a good agent, analyze the off market deals presented to me on either SF or MF within my budget, account for some repairs so I don't want to buy turnkey but also don't want to BRRRR from out of state (at least not yet), and rent to section 8. Aiming to get a C property, in a B neighborhood, to attract the best of the worst in terms of clients to capture stability of section 8.
The biggest thing I'm stuck on is knowing who to trust. Everyone's got an opinion and something to sell. For someone brand new, its quite frustrating. Right now, after reading these posts, I'm second guessing my realtor even though I felt like I had already found a good one. I haven't been able to find PM yet that I fully trust that can get a good tenant in there and get rehab/repairs done without getting lied to and ripped off since so many reviews on PM probably only include bad experiences. Do I just use the realtor's complete list of contacts on their rolodex if they've proven to be a successful and have a good reputation on BP?
I want to deploy the knowledge on the opportunities in real estate that I know are there but being OOS makes it difficult to move forward and just discouraged at the moment. - 2yTravis TimmonsPro MemberRental Property Investor · Ellsworth, ME · Member since 2021 · 1k+ posts · 2k+ votes
@LaTonya Clark I self manage out of state without any real issues and have bought 2 properties sight unseen. HOWEVER, I was very, very familiar with the location of both. One was on the same street as another that I own and the other was in a city that I had spent a lot of time and seriously considered moving to.
My point, though, is that you're not buying stocks. Purchasing a property in a place that one has zero connection to, no working knowledge of, and is dependent upon strangers with a profit motive to succeed is a terrible idea.
Every out of state investment that I have purchased was preceded and followed by me spending a lot of time in that market/property. You develop a team by establishing real friendships, relationships, and trust with locals that you get to know in person. When they watch you get your hands dirty, you earn their respect and move on from being faceless, out of state dumb money that they can nickel and dime to death at every turn.
@Miguelli Fernandez sorry that you became part of a larger conversation. Most of this frustration is born out of the Ohio gang like @Jimmy Lieu who do nothing but spam these forums. Too many people with something to sell make this seem so much easier than it actually is. Make no mistake, you are 1000% on your own when you buy an out of state investment. You have to solve your own problems.
- Real Estate Broker · NY · Member since 2020 · 70 posts · 27 votes2y
@Travis Timmons
I guess I am one of a few that has the higher power looking out for me. I found a great realtor That did a lot of legwork for me on my first rental and overtime We built a relationship. Now I found another realtor that does the same. And they both have been so good to me and I trust them. I’m on my 6th door. I have them check it out for me, FaceTime me, take pictures and get an inspector in there and it just works out for me. I was not familiar with the area, but this is where you trust a realtors opinions, as they should have an idea of the area and the potential rents and if it’s an A, B or C neighborhood. I have a duplex that I haven’t even seen that. I just bought a month ago. And it was an easy buy because it was already occupied with tenants that wanted to stay.
So that’s my story. I hope it gives someone to spark to realize that it can be done.
- 2yChris ClothierBusiness MemberRental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
Quote from @Miguelli Fernandez:
Quote from @Nicholas L.:
i totally agree with you - i have out of state rentals myself. one i self-manage. i just look for risk in posts - since I don't know the people in person i have to go by what they post, and so here i saw the same thing @Travis Timmons did - 'stacking' risk factors:
-from California
-probably chose Cleveland solely because of the price point and not because of any market knowledge
-asked about borrowing 100% and asked about forming an LLC
-did not indicate anything about strategy
to be very clear - these are fine questions that OP is asking, and out of state investing is a fine strategy. it's just higher or lower risk depending on who you are and what you're trying to accomplish. and with nothing else to go on, this one seemed on the higher risk side.
Your responses have all been very appreciated as you seem to be looking to mitigate catastrophe for strangers starting out.
So far, it's been 1 step forward and 2 steps backwards. I did some research on BP via reviews on realtors that were in the Cleveland market and met on teams/zoom and chose the one I felt was most trustworthy solely based on volume of good reviews, some social media presence, and other factors that provided value to me.
I got into investing after reading about section 8. My strategy is to find a good agent, analyze the off market deals presented to me on either SF or MF within my budget, account for some repairs so I don't want to buy turnkey but also don't want to BRRRR from out of state (at least not yet), and rent to section 8. Aiming to get a C property, in a B neighborhood, to attract the best of the worst in terms of clients to capture stability of section 8.
The biggest thing I'm stuck on is knowing who to trust. Everyone's got an opinion and something to sell. For someone brand new, its quite frustrating. Right now, after reading these posts, I'm second guessing my realtor even though I felt like I had already found a good one. I haven't been able to find PM yet that I fully trust that can get a good tenant in there and get rehab/repairs done without getting lied to and ripped off since so many reviews on PM probably only include bad experiences. Do I just use the realtor's complete list of contacts on their rolodex if they've proven to be a successful and have a good reputation on BP?
I want to deploy the knowledge on the opportunities in real estate that I know are there but being OOS makes it difficult to move forward and just discouraged at the moment.MIguelli,
This is a good thing right now. You realize that there is a lot you don't know yet and aren't sure how or who to trust. These are good instincts. The opposite would be just buying properties because someone told you it was a good deal and penciled out a spreadsheet that convinced you. It is a good sign that you are skeptical, so don't be frustrated.
My advice at this point is to make a post on BP asking if there are investors or investor groups in the city you live in California that you can meet with in person who have invested in the cities you are interested in buying. You will get some of the same responses, but look for someone or multi investors you can meet with and buy them a cup of coffee or a beer and ask them to share their successes and failures. So many investors here are happy to share how they went about investing across the country. Some will be more active, and some will be passive, but at this point, I would push forward with directly connecting with investors who have nothing to sell and are not collecting referral fees.
Don't be frustrated, and don't be in a hurry. Good, smart investments are always available. It usually takes a bit of time to feel confident in your decision-making. You will always get conflicting advice on different topics. But it does get easier to decipher the good from the bad and the helpful from the unhelpful.
Good luck as you go forward. I personally think you're in a great spot because you are asking questions and not just throwing your money around. I hope you make a few connections so you can meet across the table and get the advice you need.
- Member since 2024 · 33 posts · 43 votes2y
Quote from @Chris Clothier:
Quote from @Miguelli Fernandez:
Quote from @Nicholas L.:
i totally agree with you - i have out of state rentals myself. one i self-manage. i just look for risk in posts - since I don't know the people in person i have to go by what they post, and so here i saw the same thing @Travis Timmons did - 'stacking' risk factors:
-from California
-probably chose Cleveland solely because of the price point and not because of any market knowledge
-asked about borrowing 100% and asked about forming an LLC
-did not indicate anything about strategy
to be very clear - these are fine questions that OP is asking, and out of state investing is a fine strategy. it's just higher or lower risk depending on who you are and what you're trying to accomplish. and with nothing else to go on, this one seemed on the higher risk side.
Your responses have all been very appreciated as you seem to be looking to mitigate catastrophe for strangers starting out.
So far, it's been 1 step forward and 2 steps backwards. I did some research on BP via reviews on realtors that were in the Cleveland market and met on teams/zoom and chose the one I felt was most trustworthy solely based on volume of good reviews, some social media presence, and other factors that provided value to me.
I got into investing after reading about section 8. My strategy is to find a good agent, analyze the off market deals presented to me on either SF or MF within my budget, account for some repairs so I don't want to buy turnkey but also don't want to BRRRR from out of state (at least not yet), and rent to section 8. Aiming to get a C property, in a B neighborhood, to attract the best of the worst in terms of clients to capture stability of section 8.
The biggest thing I'm stuck on is knowing who to trust. Everyone's got an opinion and something to sell. For someone brand new, its quite frustrating. Right now, after reading these posts, I'm second guessing my realtor even though I felt like I had already found a good one. I haven't been able to find PM yet that I fully trust that can get a good tenant in there and get rehab/repairs done without getting lied to and ripped off since so many reviews on PM probably only include bad experiences. Do I just use the realtor's complete list of contacts on their rolodex if they've proven to be a successful and have a good reputation on BP?
I want to deploy the knowledge on the opportunities in real estate that I know are there but being OOS makes it difficult to move forward and just discouraged at the moment.MIguelli,
This is a good thing right now. You realize that there is a lot you don't know yet and aren't sure how or who to trust. These are good instincts. The opposite would be just buying properties because someone told you it was a good deal and penciled out a spreadsheet that convinced you. It is a good sign that you are skeptical, so don't be frustrated.
My advice at this point is to make a post on BP asking if there are investors or investor groups in the city you live in California that you can meet with in person who have invested in the cities you are interested in buying. You will get some of the same responses, but look for someone or multi investors you can meet with and buy them a cup of coffee or a beer and ask them to share their successes and failures. So many investors here are happy to share how they went about investing across the country. Some will be more active, and some will be passive, but at this point, I would push forward with directly connecting with investors who have nothing to sell and are not collecting referral fees.
Don't be frustrated, and don't be in a hurry. Good, smart investments are always available. It usually takes a bit of time to feel confident in your decision-making. You will always get conflicting advice on different topics. But it does get easier to decipher the good from the bad and the helpful from the unhelpful.
Good luck as you go forward. I personally think you're in a great spot because you are asking questions and not just throwing your money around. I hope you make a few connections so you can meet across the table and get the advice you need.
Thanks for the advice and encouragement! My wife's cousin has a developing team out there and we've been talking but she's still new to the game. Market renter and section 8 in her first duplex. So far things have worked out and has a seemingly decent PM. Only time will tell. In addition to her and this forum, it would be a good idea to connect with local investors to pick their brain on the dos and dont's. Shaking hands with someone seems to always be superior to interactions online. Go figure.
- Member since 2024 · 33 posts · 43 votes2y
Quote from @LaTonya Clark:
@Travis Timmons
I guess I am one of a few that has the higher power looking out for me. I found a great realtor That did a lot of legwork for me on my first rental and overtime We built a relationship. Now I found another realtor that does the same. And they both have been so good to me and I trust them. I’m on my 6th door. I have them check it out for me, FaceTime me, take pictures and get an inspector in there and it just works out for me. I was not familiar with the area, but this is where you trust a realtors opinions, as they should have an idea of the area and the potential rents and if it’s an A, B or C neighborhood. I have a duplex that I haven’t even seen that. I just bought a month ago. And it was an easy buy because it was already occupied with tenants that wanted to stay.
So that’s my story. I hope it gives someone to spark to realize that it can be done.
These stories definitely helpful and encouraging. What market are y our properties in?
- Member since 2024 · 33 posts · 43 votes2yIf I can pick up wisdom from being caught in the crossfire, so be it. All of this has been helpful moving forward. When analyzing deals its always seems as if the opportunity is passing me by and the rational part of my brain turns off but posts like yours are sobering and will help prevent mitigate losses.
Quote from @Travis Timmons:
@LaTonya Clark I self manage out of state without any real issues and have bought 2 properties sight unseen. HOWEVER, I was very, very familiar with the location of both. One was on the same street as another that I own and the other was in a city that I had spent a lot of time and seriously considered moving to.
My point, though, is that you're not buying stocks. Purchasing a property in a place that one has zero connection to, no working knowledge of, and is dependent upon strangers with a profit motive to succeed is a terrible idea.
Every out of state investment that I have purchased was preceded and followed by me spending a lot of time in that market/property. You develop a team by establishing real friendships, relationships, and trust with locals that you get to know in person. When they watch you get your hands dirty, you earn their respect and move on from being faceless, out of state dumb money that they can nickel and dime to death at every turn.
@Miguelli Fernandez sorry that you became part of a larger conversation. Most of this frustration is born out of the Ohio gang like @Jimmy Lieu who do nothing but spam these forums. Too many people with something to sell make this seem so much easier than it actually is. Make no mistake, you are 1000% on your own when you buy an out of state investment. You have to solve your own problems.
You are working way too hard. All you need to do is connect with those are actually doing deals. let them handle for you.
I am literally sitting on the beach right now and I have guys doing three renovations, two rental returns, and walking two properties. I'll probably go to contract Monday morning on. Again all from the beach.- 2yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
yes - avoiding catastrophes for new investors is the name of the game.
thanks for the additional information and background. i like the suggestion by @Chris Clothier to get in touch with other California investors doing what you want to do. there are lots of them - you need to find them.
you should also, if you can, go to Cleveland and meet folks in person.
and i think @Travis Timmons said it - but even if you find trustworthy folks and they make good recommendations, everything is still ultimately going to be your responsibility. say for example you buy a solid property, hire a solid PM, and a solid-looking tenant passes screening and moves in. then in month 4 they trash the unit and disappear and it costs you $3K to fix. whose 'fault' is it? new investors will blame the realtor or the PM or whatever. but no one is promising you success, they're just performing a set of services.
my point is you can get recommendations or whatever you want, but at the end of the day it's your money and your business.
- Irvine, CA · Member since 2018 · 7 posts · 6 votes2y
Quote from @Miguelli Fernandez:
Been doing a lot of research and prep work and feeling ready to start putting offers. Few questions still.
1. If I use a HELOC or HELOAN from my primary residence to buy a rental, will the mortgage interest be able to offset the rental's income? (I have read it can't be which is why I'm at this point considering just going with a 30 year conventional loan and putting the 15% or 25% for SFH or MFH.
2. I'm based in California but plan to buy rentals in Cleveland Ohio. Where should I form my LLC? California or Ohio? Getting conflicting info.1. HELOC/HELOAN Interest Deduction
- You might be able to deduct HELOC/HELOAN interest against rental income if you can trace the loan to the rental purchase. However, this is tricky.
- A conventional loan tied directly to the rental will make the mortgage interest easier to deduct.
2. Where to Form Your LLC
- Ohio LLC - since your rentals are there. It’s cheaper, and you avoid California’s $800 annual franchise tax.
- If you form in California, you’ll pay fees in both states (California and Ohio).
But I would setup an LLC in WY and appoint your Ohio LLC as the manager of the WY LLC and put it all in a land trust. You want to maintain anonymity and protect yourself from liabilities at all times! Real Estate is a very litigious industry especially when dealling with tenants.
- Rental Property Investor · San Francisco Bay Area · Member since 2022 · 1k+ posts · 1k+ votes2y
I totally agree with @Nicholas L. and @Travis Timmons. If I were you I wouldn't take out a HELOC against your primary to buy OOS in a market you don't know well. The LLC issue is insignificant compared to the buying Class C section 8 or possibly Class B in an unknown area.
I didn't buy in Cleveland but I bought in Indianapolis. I even lived in the Indianapolis area so I knew the market, now more to a detailed level. I've lost money in cash flow on paper Class C and posted many times about this and I go into a lot of detail. So many things have gone wrong. I've been taken advantage of financially of, 2 properties broken into, etc - being 2000 miles away is a huge negative.
I can tell you numerous stories of CA investors that I've met at meet ups who have lost money OOS, especially Class C. It's a gamble unless you're experienced and know what you're doing. I decided to stick with adding value to my CA properties. I'm not trying to squash your dreams but have lots of cash reserves if you decide to proceed.
Not sure if you're in the Bay Area or SoCal but there are lots of RE meet ups and you can talk to investors who invest OOS and may give you other ideas to mitigate the risk. You're just going to get spammed by agents on here because you said the magic words "I'm in California looking to invest OOS"
Feel free to DM me if you have further questions :) Good luck.
- 2yNathaniel QuesenberryBusiness MemberAccountant · Member since 2024 · 15 posts · 9 votes
Miguelli,
Congrats on walking into the world of real estate!
The interest from the HELOC would be deductible as a rental expenses against any rental income you have from the property.
Not a lawyer, but generally you need to have an LLC in the state that you do business in (in this case own a rental property) in order to actually get the benefits of the legal protection. I'd definitely recommend not going with an LLC in CA simply due to the franchise tax and the admin burden here. If I'm wrong with respect to the legal aspects of this someone please correct me.
Best of luck!
- Member since 2024 · 33 posts · 43 votes2y
Quote from @Adrian Pinson:
Quote from @Miguelli Fernandez:
Been doing a lot of research and prep work and feeling ready to start putting offers. Few questions still.
1. If I use a HELOC or HELOAN from my primary residence to buy a rental, will the mortgage interest be able to offset the rental's income? (I have read it can't be which is why I'm at this point considering just going with a 30 year conventional loan and putting the 15% or 25% for SFH or MFH.
2. I'm based in California but plan to buy rentals in Cleveland Ohio. Where should I form my LLC? California or Ohio? Getting conflicting info.1. HELOC/HELOAN Interest Deduction
- You might be able to deduct HELOC/HELOAN interest against rental income if you can trace the loan to the rental purchase. However, this is tricky.
- A conventional loan tied directly to the rental will make the mortgage interest easier to deduct.
2. Where to Form Your LLC
- Ohio LLC - since your rentals are there. It’s cheaper, and you avoid California’s $800 annual franchise tax.
- If you form in California, you’ll pay fees in both states (California and Ohio).
But I would setup an LLC in WY and appoint your Ohio LLC as the manager of the WY LLC and put it all in a land trust. You want to maintain anonymity and protect yourself from liabilities at all times! Real Estate is a very litigious industry especially when dealling with tenants.
What about a DSCR loan interest deduction? Since it'll be tied to the rental assuming it would be. Can anyone confirm?
- Talk with your accountant. Also, do you have a team there?
Quote from @Miguelli Fernandez:
Been doing a lot of research and prep work and feeling ready to start putting offers. Few questions still.
1. If I use a HELOC or HELOAN from my primary residence to buy a rental, will the mortgage interest be able to offset the rental's income? (I have read it can't be which is why I'm at this point considering just going with a 30 year conventional loan and putting the 15% or 25% for SFH or MFH.
2. I'm based in California but plan to buy rentals in Cleveland Ohio. Where should I form my LLC? California or Ohio? Getting conflicting info. - Lender · Austin, TX · Member since 2021 · 448 posts · 441 votes2y
Quote from @Miguelli Fernandez:
Quote from @Adrian Pinson:
Quote from @Miguelli Fernandez:
Been doing a lot of research and prep work and feeling ready to start putting offers. Few questions still.
1. If I use a HELOC or HELOAN from my primary residence to buy a rental, will the mortgage interest be able to offset the rental's income? (I have read it can't be which is why I'm at this point considering just going with a 30 year conventional loan and putting the 15% or 25% for SFH or MFH.
2. I'm based in California but plan to buy rentals in Cleveland Ohio. Where should I form my LLC? California or Ohio? Getting conflicting info.1. HELOC/HELOAN Interest Deduction
- You might be able to deduct HELOC/HELOAN interest against rental income if you can trace the loan to the rental purchase. However, this is tricky.
- A conventional loan tied directly to the rental will make the mortgage interest easier to deduct.
2. Where to Form Your LLC
- Ohio LLC - since your rentals are there. It’s cheaper, and you avoid California’s $800 annual franchise tax.
- If you form in California, you’ll pay fees in both states (California and Ohio).
But I would setup an LLC in WY and appoint your Ohio LLC as the manager of the WY LLC and put it all in a land trust. You want to maintain anonymity and protect yourself from liabilities at all times! Real Estate is a very litigious industry especially when dealling with tenants.
What about a DSCR loan interest deduction? Since it'll be tied to the rental assuming it would be. Can anyone confirm?
If the question is "will higher rental income lead to a better rate with a DSCR loan" the answer is generally yes. With DSCR, you will qualify the deal based on the property's income and not your W2 income. Reach out if you want to explore this option!
- Realtor · Cleveland, OH · Member since 2023 · 340 posts · 215 votes2y
Hi, I would recommend you speak to a professional lender/ accountant or financial advisor about these topics they will let you know the best way to go regarding your real estate goals. Please reach out to me if you have any questions. Best wishes!
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