We are considering buying our first multifamily property in Ohio and plan to hold it within an LLC. We're trying to decide between forming the LLC in Ohio or Wyoming.
We've heard Wyoming offers stronger anonymity with lower costs, while Ohio might provide specific benefits for in-state real estate.
Can someone please elaborate on the advantages and disadvantages of each state for our situation? Specifically, we'd like to understand:
Liability Protection: How does each state's legal framework and case law compare in protecting our personal assets from liabilities related to the property?
Anonymity: What specific features of each state's LLC laws enhance privacy, and how significant are these differences in practice?
Tax Implications: Are there any tax advantages or disadvantages to consider when choosing between an Ohio or Wyoming LLC for owning Ohio real estate? In case it is important, we are based in CA.
Administrative Requirements: Are there differences in ongoing fees, reporting requirements, or other administrative burdens between the two states?
Since this is our first property, is it advisable to use a single LLC for both personal asset protection and holding the property, or are there reasons to consider a more complex structure?"
California is generally more cumbersome than other states when it comes to taxes and filings. Even if you create a non-CA LLC, if you are managing the business from California, you will likely be deemed to be "doing business" in California and therefore likely subject to CA taxes. California charges a minimum tax of $800 a year per LLC, and more if you have gross receipts in excess of $250k. So, if you create an LLC in another state, you will likely need to register it as a foreign LLC in California. Though, this process will be the same for the other state (if you created a CA LLC you may need to register it as a foreign LLC in the state in which you are doing business/holding property). This means that you will probably need to pay registration and filing fees in at least 2 states if you don't buy CA property as a CA resident.
Be sure to tell your accountant that you may now need to file non-resident income tax returns in each state where you own property as well. CA taxes residents on worldwide income but may provide a credit for taxes paid to other states.
Most likely the state where the property is located is where lawsuits would be brought if they are something for personal injury like a trip and fall or something of that nature because the “cause of action” arose in that state. So even if you pick a state with stronger protections like WY or NV, the cause of action arose in the state where the tenant fell, so likely that the court where the accident happened would have jurisdiction. Of course, with all things, the answers to all these matters will depend on the circumstances.
California tends to have more laws on the books and requirements and restrictions that it can be a good idea to form a CA LLC for out of state property so that you as a CA resident are covered, and to try to have your contracts fall under the purview of CA courts. It also is helpful to have a California LLC in case you ever sell that property and move into another state so that you do not need to form a new LLC altogether with new operating agreement, just re-register in the new state as a new foreign LLC. Also, the state of formation is likely where internal disputes would be brought among LLC members, so if you and a partner and/or spouse live in CA, you probably want to arbitrate in CA if the two of you had a disagreement. But, that is not always the right answer and you should speak with someone familiar with your personal situation to get advice specific to you.
*This post is informational only and is not to be relied upon. Readers are advised to seek professional advice. This post does not create an attorney-client or CPA-client relationship.
We are considering buying our first multifamily property in Ohio and plan to hold it within an LLC. We're trying to decide between forming the LLC in Ohio or Wyoming.
We've heard Wyoming offers stronger anonymity with lower costs, while Ohio might provide specific benefits for in-state real estate.
Can someone please elaborate on the advantages and disadvantages of each state for our situation? Specifically, we'd like to understand:
Liability Protection: How does each state's legal framework and case law compare in protecting our personal assets from liabilities related to the property?
Anonymity: What specific features of each state's LLC laws enhance privacy, and how significant are these differences in practice?
Tax Implications: Are there any tax advantages or disadvantages to consider when choosing between an Ohio or Wyoming LLC for owning Ohio real estate? In case it is important, we are based in CA.
Administrative Requirements: Are there differences in ongoing fees, reporting requirements, or other administrative burdens between the two states?
Since this is our first property, is it advisable to use a single LLC for both personal asset protection and holding the property, or are there reasons to consider a more complex structure?"
The issue I often encounter with this line of thinking is that investors frequently fail to consult their lender about what is permissible. Many times, if you wish to hold the title in the name of an LLC, you may end up with less favorable terms or even find that it's not allowed.
If you do find a loan program that permits taking the title in an LLC, it's essential to consult with your attorney and accountant to understand how to proceed. I advise against asking random people on the internet for guidance on this matter.
Another thing to consider is the Corporate Transparency Act has removed some of the anonymity you get with LLCs.
California is generally more cumbersome than other states when it comes to taxes and filings. Even if you create a non-CA LLC, if you are managing the business from California, you will likely be deemed to be "doing business" in California and therefore likely subject to CA taxes. California charges a minimum tax of $800 a year per LLC, and more if you have gross receipts in excess of $250k. So, if you create an LLC in another state, you will likely need to register it as a foreign LLC in California. Though, this process will be the same for the other state (if you created a CA LLC you may need to register it as a foreign LLC in the state in which you are doing business/holding property). This means that you will probably need to pay registration and filing fees in at least 2 states if you don't buy CA property as a CA resident.
Be sure to tell your accountant that you may now need to file non-resident income tax returns in each state where you own property as well. CA taxes residents on worldwide income but may provide a credit for taxes paid to other states.
Most likely the state where the property is located is where lawsuits would be brought if they are something for personal injury like a trip and fall or something of that nature because the “cause of action” arose in that state. So even if you pick a state with stronger protections like WY or NV, the cause of action arose in the state where the tenant fell, so likely that the court where the accident happened would have jurisdiction. Of course, with all things, the answers to all these matters will depend on the circumstances.
California tends to have more laws on the books and requirements and restrictions that it can be a good idea to form a CA LLC for out of state property so that you as a CA resident are covered, and to try to have your contracts fall under the purview of CA courts. It also is helpful to have a California LLC in case you ever sell that property and move into another state so that you do not need to form a new LLC altogether with new operating agreement, just re-register in the new state as a new foreign LLC. Also, the state of formation is likely where internal disputes would be brought among LLC members, so if you and a partner and/or spouse live in CA, you probably want to arbitrate in CA if the two of you had a disagreement. But, that is not always the right answer and you should speak with someone familiar with your personal situation to get advice specific to you.
*This post is informational only and is not to be relied upon. Readers are advised to seek professional advice. This post does not create an attorney-client or CPA-client relationship.
These questions are best left answered by an entity specialist. If you DM me, I can refer you to who our community uses. The only answer you should be getting from laypeople is IT DEPENDS. It depends upon so many factors, that an attorney needs to spend time mapping it out with you
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
1y
An LLC is useful for two things: anonymity and legal protection. In most cases, neither is warranted.
Warning: I am not an attorney, and this can be a complicated topic. Please note the information provided below is a layman's definition designed to provide a basic understanding for the general audience. You should consult an attorney or CPA for your specific situation.
ANONYMITY: When you create the LLC, your name is recorded on the documents and published on the Secretary of State's website for all to see. So you're not completely anonymous. If you want to be completely anonymous, you can use a Registered Agent. The Registered Agent will record the documents on your behalf so only their name and information appear on the documents. I've done this with my properties because I'm well known in my small town and don't want people to know what I own.
LEGAL PROTECTION: By placing your assets in an LLC, you are legally separating them from your personal assets. If someone injures themselves and sues, they will be suing the LLC and not you personally. If your insurance coverage isn't enough, they could seize the LLC assets, but not your personal assets.
Additional thoughts:
1. An LLC is not free. You can spend as little as $100 to form an LLC, or you could use an attorney and spend $1,000 or more. There are also additional costs of operating and maintaining an LLC, like separate bank accounts, annual report filings, tax filings, etc.
2. There are rules to follow! If you fail to follow the rules, you may open your personal assets to a lawsuit. An example of this would be mixing your personal money and LLC money in the same bank account.
3. You do not need a separate LLC for each property or a series LLC! Don't make your life more complicated than it has to be. Most professionals will recommend a separate LLC for every $1 million in assets but I don't think that's necessary. In my case, I have residential rentals in one LLC, commercial properties in another, self storage in a third, and my real estate company operates in a fourth. Some have more than $1 million in equity while others have less.
4. The need for an LLC is grossly exaggerated on BiggerPockets and other websites. Have you ever heard of a Landlord being sued by a Tenant and losing property? I've been on this board since 2010 and haven't found an example yet. You've probably heard of big Landlords losing property, but only because they were flagrantly violating Fair Housing, running a slum, or otherwise violating the law in an egregious manner. You are more likely to be struck by lightning twice. The vast majority of lawsuits against Landlords are for wrongful eviction, security deposit disputes, and Fair Housing Violations. Your primary insurance policy with $300,000 in liability coverage should be sufficient in 99.999% of all lawsuits.
5. The best protection for you and your investments? Know and obey the law. I manage around 400 rentals with 14 years of experience and have never been sued once. Even if I were sued, I document everything and obey the law, so I won't be found guilty. Even if I were found guilty, the cost would be in the thousands, not in the millions. Insurance would cover it, I would pay the deductible, and no assets would be lost.
If you are in an area like San Diego where people are more likely to sue, a judge is more likely to find you guilty, and the payout is expected to be higher, you may consider an umbrella insurance policy. This policy will provide additional coverage above what your existing policy covers. It's easy to obtain, costs very little, and doesn't require extra, on-going effort to maintain.
We are considering buying our first multifamily property in Ohio and plan to hold it within an LLC. We're trying to decide between forming the LLC in Ohio or Wyoming.
We've heard Wyoming offers stronger anonymity with lower costs, while Ohio might provide specific benefits for in-state real estate.
Can someone please elaborate on the advantages and disadvantages of each state for our situation? Specifically, we'd like to understand:
Liability Protection: How does each state's legal framework and case law compare in protecting our personal assets from liabilities related to the property?
Anonymity: What specific features of each state's LLC laws enhance privacy, and how significant are these differences in practice?
Tax Implications: Are there any tax advantages or disadvantages to consider when choosing between an Ohio or Wyoming LLC for owning Ohio real estate? In case it is important, we are based in CA.
Administrative Requirements: Are there differences in ongoing fees, reporting requirements, or other administrative burdens between the two states?
Since this is our first property, is it advisable to use a single LLC for both personal asset protection and holding the property, or are there reasons to consider a more complex structure?"
What you are asking for is called venue shopping.
Relying on advice from Layman in the field seems like a very risky way to conduct business.
Speaking to an asset protection attorney about this where you can discuss your personal assets and business assets in a private conversation might be something you would want to look into.
Venue shopping is something you could also discuss.
Because making a big decision like this based on what someone on the Internet said isn't going to fly in front of a judge if you need that. Good Luck!
