New to REI - Looking to start out of state

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New to REI - Looking to start out of state

Michael ArceoPro Member
Member since 2025 · 1 post · 12 votes

Hi,

I've been looking to get my journey started in Real Estate Investing and finally pulled the trigger after watching a few YouTube videos from Bigger Pockets. If I were looking at buying my first rental property out of state should I have an LLC in the state my rental property is or my home state?

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Samuel DioufBusiness Member
Real Estate Agent · Columbus & Cleveland, OH · Member since 2023 · 1k+ posts · 1k+ votes
1y

Hey Michael, for your first deal you don't NEED a LLC to purchase. You'll actually get better loan terms if you purchase in your personal name and go conventional.

However, if you do plan on using a LLC, you should consult with an attorney on how you should set it up. I know most of my clients in Ohio who are investing from out of the state are forming their LLC's in Ohio.

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  • Min ZhangBusiness Member
    Real Estate Agent · Member since 2022 · 1k+ posts · 1k+ votes
    1y

    Hey Michael! It's generally recommended to form your LLC in the state where the property is located. Doing so helps simplify the process and makes your setup more efficient. I'd also suggest reaching out to a local attorney who can guide you through the setup and provide more specific information for your situation

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    • Marsha Auguste
      Member since 2025 · 4 posts · 0 votes
      1y
      Quote from @Min Zhang:

      Hey Michael! It's generally recommended to form your LLC in the state where the property is located. Doing so helps simplify the process and makes your setup more efficient. I'd also suggest reaching out to a local attorney who can guide you through the setup and provide more specific information for your situation


       What are some complications if the llc is formed in your own state?

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  • Samuel DioufBusiness Member
    Real Estate Agent · Columbus & Cleveland, OH · Member since 2023 · 1k+ posts · 1k+ votes
    1y

    Hey Michael, for your first deal you don't NEED a LLC to purchase. You'll actually get better loan terms if you purchase in your personal name and go conventional.

    However, if you do plan on using a LLC, you should consult with an attorney on how you should set it up. I know most of my clients in Ohio who are investing from out of the state are forming their LLC's in Ohio.

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  • Mackaylee BeachPro Member
    Real Estate Agent · Kansas City, MO · Member since 2020 · 1k+ posts · 494 votes
    1y
    • Consult a Professional - It's always a good idea to consult with a real estate attorney or a tax professional who understands the nuances of both your home state and the state where your property is located. They can provide tailored advice based on your specific situation and investment goals.

    Starting your investment journey is exciting, and making informed decisions now can set you up for long-term success.

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  • Jimmy LieuBusiness Member
    Real Estate Agent · Columbus, OH · Member since 2019 · 3k+ posts · 2k+ votes
    1y
    Quote from @Michael Arceo:

    Hi,

    I've been looking to get my journey started in Real Estate Investing and finally pulled the trigger after watching a few YouTube videos from Bigger Pockets. If I were looking at buying my first rental property out of state should I have an LLC in the state my rental property is or my home state?

    Hey Michael! Welcome to BiggerPockets! Great question and awesome to hear you're diving into real estate investing. When it comes to LLCs, it really depends on your situation and goals. A lot of investors set up their LLC in the state where the rental property is located—mainly because if you set up an LLC in your home state (like California) but own property in, say, Ohio or Indiana, you'll likely still have to register that LLC as a foreign entity in the property's state, which can mean extra fees and paperwork. That said, if you're based in a state like California where LLC fees are higher and more complicated, many investors choose to form LLCs directly in the state where they're buying to keep things simpler and avoid double filings. It's always smart to talk with a CPA or attorney familiar with real estate and your specific states, but from a practical standpoint, I've seen a lot of people investing out of state (especially in affordable, cash-flowing markets like Columbus, Ohio) go the route of setting up the LLC in the investment state. Happy to connect and answer any questions you have!

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  • Nadeem Alamgir
    Real Estate Agent · Member since 2023 · 831 posts · 577 votes
    1y

    Hey Michael, congratulations on taking this important first step! If you're purchasing property out of state, it's typically a good idea to establish the LLC in that same state. Some investors choose to initially buy in their personal names for easier financing, then transfer the property to an LLC later. Worth chatting with an attorney here so you get more insight.

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  • Joey BanasihanPro Member
    Investor · Boise, ID · Member since 2019 · 238 posts · 189 votes
    1y

    Hey @Michael Arceo - 

    You don’t have to set up an LLC to get started—plenty of investors buy their first few properties in their personal name, especially early on. Whether or not it makes sense depends on your goals, how your LLC is structured, and the state you're buying in.

    Some states offer very little liability protection through an LLC, so the real benefit might be minimal. That said, if asset protection is a priority, or you're planning to scale, it's worth speaking with a local attorney or CPA to make sure it aligns with your strategy.

    Also, if you're investing out of state, you'll want to consider landlord-friendly laws and how your entity is treated in that state—it might be more beneficial to form your LLC where the property is located, but that's not always necessary.

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  • Ned CareyPro Member
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    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    1y

    @Michael Arceo generally you should have an LLC in the state where the property is located. Most if not all states require that a foreign (out of state) company register in the state to do business there.

    I have foreclosed on owners that didn't even know they lost their property because they hadn't registered their company in Maryland.

    A serious question is why out of state. It will increase both your risk and cost. People who know their market the best tend to get the best deals. It is easier to learn a nearby market.

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    • Jason Phung
      New to Real Estate · Boston, MA · Member since 2025 · 6 posts · 3 votes
      1y
      Quote from @Ned Carey:

      @Michael Arceo generally you should have an LLC in the state where the property is located. Most if not all states require that a foreign (out of state) company register in the state to do business there.

      I have foreclosed on owners that didn't even know they lost their property because they hadn't registered their company in Maryland.

      A serious question is why out of state. It will increase both your risk and cost. People who know their market the best tend to get the best deals. It is easier to learn a nearby market.


      Would you recommend a new investor who lives in a market that is too expensive for them? I'm in the Boston, MA area and have been interested in an out of state investment, but decided that learning would be easier with my first property in a local market. Prices here are pretty high and finding a deal that will provide any type of cashflow is challenging for somebody just starting out. 

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  • Kerlous TadresBusiness Member
    Realtor · Columbus, OH · Member since 2023 · 1k+ posts · 1k+ votes
    1y

    Hi Michael,

    It's best to set up your LLC in the state where your rental property is located. This helps protect your personal assets and makes it easier to follow local laws and taxes. It also avoids extra fees that might come with having an LLC in your home state.

    Make sure to talk to a local lawyer or tax professional to ensure you're doing what's best for your situation.

    [email protected]614-490-1163
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  • Amit PatelBusiness Member
    Property Manager · Bartlett, IL · Member since 2025 · 170 posts · 67 votes
    1y

    Hi Michael! Congratulations on starting in this journey!

    In my experience, if you're buying your first rental property out of state, it's usually best to set up your LLC in the state where the property is. Since you're doing business there, it keeps everything simple and legal. You could form the LLC in your home state and register it as a foreign LLC in the other state, but that means extra fees and more paperwork. Starting with a local LLC makes things easier and protects you better. Once you start buying more properties in different states, it's a good idea to talk to a real estate lawyer or accountant to figure out the best setup for you.

    Hope this advice help you!

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  • Rene HosmanPro Member
    Rental Property Investor · Denver, CO · Member since 2024 · 583 posts · 655 votes
    1y

    I'm surprised this but you should also talk to your lender because with many loan products you cannot purchase the property in an LLC you'd have to purchase it yourself but that doesn't mean you can't manage the property using an LLC, it does however mean that if someone wanted to find the owner of the home (you) it wouldn't be very hard they'd just look at the county assessors website to see who holds the title. If you're buying with cash or if you have a track record with an LLC so the bank will allow you to hold the property in the LLC however you can ignore what I just said :)

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  • Ryan RomingerBusiness Member
    Real Estate Broker · Indianapolis, IN · Member since 2018 · 340 posts · 144 votes
    1y

    This question comes up a lot, and the short answer is: it depends on your goals, where you plan to grow your portfolio, and what your CPA or attorney advises.

    That said, many investors start by forming the LLC in their home state for simplicity, then register it as a "foreign LLC" in the state where the property is located. Others choose to create the LLC directly in the property's state to avoid that extra registration step and annual fees.

    Keep in mind:

    • Asset protection laws vary by state (some are more landlord-friendly than others).

    • Tax treatment might differ between states—especially when it comes to pass-through income and state filings.

    • If you're financing, some lenders may require you to buy in your personal name first and transfer to an LLC later (with due-on-sale implications).

    It’s a great idea to talk to a local attorney or CPA who works with investors—they can give you clear direction based on your full picture.

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  • Bernice RetzloffPro Member
    Memphis, TN · Member since 2024 · 234 posts · 100 votes
    1y

    Hey @Michael Arceo!

    Love that you're taking action and diving in! When it comes to setting up an LLC for out-of-state rentals, it depends on a few things. A lot of investors choose to form the LLC in the state where the property is located, since that's where any legal issues would likely arise and it can simplify registration and taxes. Some form it in their home state or in places like Wyoming or Delaware for privacy or asset protection, but you may still have to register as a foreign entity in the property's state anyway. So that can mean double fees and paperwork. Bottom line: forming it in the state where the property is makes things cleaner. That said, it's always worth a quick chat with a real estate-savvy attorney or CPA to make sure it lines up with your long-term plan. You're on the right track!

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  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · Sarasota, FL · Member since 2017 · 5k+ posts · 3k+ votes
    1y

    @Michael Arceo Great question and welcome to the REI journey! When buying your first rental out of state, deciding where to form your LLC depends on a few key factors:

    • Property Location Matters: If your rental will be in a different state than your residence, it's generally best to form the LLC in the state where the property is located. That's because:
      • You’ll likely need to register as a foreign LLC in the property’s state anyway, which adds cost and paperwork.
      • States like Texas, Florida, or Ohio (common REI states) may have lower filing/annual fees or better asset protection laws.
    • Tax Considerations: Income from the rental is usually taxed in the state where the property sits—not where you live—so forming the LLC locally can simplify tax filings and compliance.
    • Liability Protection: Forming the LLC in the state where the property is located also strengthens your liability shield and avoids legal confusion if something goes wrong.
    • Avoid Delaware/Nevada Hype (for rentals): These states are often recommended for corporations, but they usually don’t offer practical benefits for small RE investors unless you're running a national business.

    In short: Form your LLC in the state where the property is located unless you plan to scale across multiple states—then you may want to consider a holding company structure. Also, be sure to loop in a real estate CPA so you can maximize deductions, handle pass-through taxation correctly, and ensure your setup qualifies for things like bonus depreciation and safe harbor rules.

    Want help setting this up or choosing the right structure? We can send over a downloadable LLC setup guide tailored for real estate investors.

    This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

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  • Shawn AckermanPro Member
    Real Estate Entrepreneur · Mid West, East Coast · Member since 2015 · 3k+ posts · 1k+ votes
    1y

    @Michael Arceo It is always recommended to limit your liability so that your person is not impacted by a legal business matter. Secondly, most non QM lenders, if you are looking to get funding for your company would require the property be in an entity and not in your personal name. Lastly, you can foreign file your entity with the state the property is in, you don't have to open the entity in the same state.

    All the best on your journey!

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  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    1y

    @Jason Phung I am a big believer in investing where you know. That usually means locally. The  best deals go to people who know the market the best. Investing far away increases your risk and cost.

    It is my belief that most areas will have something more affordable within 1 1/2 hrs. drive. Almost every expensive area of the country has poor people. Where do they live? there must be some type of affordable housing for them. 

    The problem is often new investors are looking at the wrong neighborhoods. A neighborhood I  and maybe you would want to live generally is not a good area for rental investing.  Good luck

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