Good afternoon everybody, i've been doing a lot of research on starting a Wyoming holding company and subsequent state specific LLC's beneath it as I am very cautious about protecting my personal assets. I've looked at federal common law super wazoo trusts. But because I live in lovely California, I am feeling extra stressed out about even being able to move forward with the FTB $800 per LLC threat over my head since it's so broad any semblance of managing anything at all is ripe for audit even with RA. I've read most people just say it's unavoidable then I ask how does anybody get anything done when they are just starting if that is the case? I was wondering, what has worked for those of you who do live in California and invest outside of California. Is umbrella insurance enough on the rental properties Ditch the LLC all together? And then is there some other way, that you protect your personal assets here in CA? I want to start investing. I'm looking for some guidance on a successful path through entity set up if at all? Any suggestions would be more than welcome and greatly appreciated.
There are several considerations that can go into the analysis of whether you need an LLC or whether a large insurance policy will suffice. Will depend on several factors like the type of property, type of tenants, your risk tolerance, other assets you own, your estate planning, laws where the property is located, etc. Same goes for number of LLCs and what to fund them with, since bear in mind that CA tends to be more cumbersome and expensive to have LLCs than other states.
California is generally more involved 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 may be deemed to be "doing business" in California and therefore maybe subject to CA taxes. California charges a minimum tax of $800 a year per LLC doing business in the state, and more if you have gross receipts in excess of $250k. So, if you create an LLC in another state, you may 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 may need to pay registration and filing fees in at least 2 states if you don't buy CA property as a CA resident.
Any lawsuits should in theory be limited to the assets of the LLC and not your personal assets (assuming you run the LLC appropriately and the corporate veil is not pierced, some debate as to SMLLC). But, an LLC will not limit you from liability in total. You can still lose your investment in the LLC. Or, a charging order may be granted. If you have a loan, you may wish to look into due-on-transfer clauses.
If you're going the umbrella insurance route, perhaps see if it will cover you for several things including just the routine slip and fall (like mold or earthquake). You'll also want to ensure you have a good property manager to look after the upkeep of the property if you are not there to notice anything deteriorating or which may need attention.
Creating an LLC in California could cost you a minimum tax of $800 every year. You would have ongoing filing requirements with the State and would need to keep business records and documentation. California does not recognize series LLCs. You'll also want to coordinate with your estate plan, and consider getting an estate plan if you do not yet have one in place.
These are all things you will want to discuss with your attorney and CPA. If you need references for either of them in San Diego, let me know.
*This post does not create an attorney-client or CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.
Developer · Member since 2020 · 4k+ posts · 4k+ votes
11mo
OP use the look up function to see prior similar question responses.
1. LLC can be done later. Decide where you want to invest first.
2. Your main liability can be covered by insurance and more importantly your operating procedures.
3. Don’t answer. How much personal assets and what type? Example if most of your assets is your house, you’re covered under threat of bankruptcy. You keep your house.
4. If you’re doing out of state and using a PM, have them list you as “Additional Insured” on their policy every year. If you get sued it will probably be due to their management and not you owning the property.
5. No matter what state you do an LLC, your Operating Agreement will be the most important tool regarding the LLC. Research that.
@Henry Clark thank you for taking the time to reply and I have been checking prior discussions, but most folks that respond do not appear to live in California. Thank you, I appreciate all the advice and suggestions you provided.
There are several considerations that can go into the analysis of whether you need an LLC or whether a large insurance policy will suffice. Will depend on several factors like the type of property, type of tenants, your risk tolerance, other assets you own, your estate planning, laws where the property is located, etc. Same goes for number of LLCs and what to fund them with, since bear in mind that CA tends to be more cumbersome and expensive to have LLCs than other states.
California is generally more involved 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 may be deemed to be "doing business" in California and therefore maybe subject to CA taxes. California charges a minimum tax of $800 a year per LLC doing business in the state, and more if you have gross receipts in excess of $250k. So, if you create an LLC in another state, you may 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 may need to pay registration and filing fees in at least 2 states if you don't buy CA property as a CA resident.
Any lawsuits should in theory be limited to the assets of the LLC and not your personal assets (assuming you run the LLC appropriately and the corporate veil is not pierced, some debate as to SMLLC). But, an LLC will not limit you from liability in total. You can still lose your investment in the LLC. Or, a charging order may be granted. If you have a loan, you may wish to look into due-on-transfer clauses.
If you're going the umbrella insurance route, perhaps see if it will cover you for several things including just the routine slip and fall (like mold or earthquake). You'll also want to ensure you have a good property manager to look after the upkeep of the property if you are not there to notice anything deteriorating or which may need attention.
Creating an LLC in California could cost you a minimum tax of $800 every year. You would have ongoing filing requirements with the State and would need to keep business records and documentation. California does not recognize series LLCs. You'll also want to coordinate with your estate plan, and consider getting an estate plan if you do not yet have one in place.
These are all things you will want to discuss with your attorney and CPA. If you need references for either of them in San Diego, let me know.
*This post does not create an attorney-client or CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.
@Katie Balatbat thank you very much for taking the time to reply to my post. I know that you’re very active on this forum as I’ve read many of your response posts. Thank you for doing that and helping everybody out with advice and suggestions. I think we’ll just have to get strong insurance policies that address as you said slip, fall or mold all of that. Otherwise, I don’t foresee being able to sustain multiple LLCs at 800 a pop. Again, thank you for taking the time to make some good points and suggestions. I truly appreciate it. I’m quite eager to get this ball rolling, but I’m trying my best to set all my ducks in a row at the start.
Real Estate Investor · Burlington, VT · Member since 2010 · 2k+ posts · 1k+ votes
11mo
@Tiffany Maloch I live in CA although I invest in VT, where I grew up and still have family. I've consulted with attorneys / CPA's here and for me personally, using a good umbrella policy and no LLC's has been sufficient. Plus most conventional lenders don't lend directly to LLC's, and you'll generally get the best terms with conventional financing. LLC's also don't give you any extra tax benefits for rental properties. The LLC would be disregarded on your personal tax return.
The key is to run the rentals as a good business with lots of documentation. Especially insurance, usually there are inspections required most years, and if they say "hard wired smoke detectors, railing height must be raised, etc". Complete it, take pictures, document it.
So that's my personal take on it. Been in the business over 25 years with no lawsuits.
@Tom S. thank you very much for taking time out of your day to respond to my inquiry. This is what I was looking for someone who lives here and could give me a real experience of their journey as an investor living here and after 25 years if this is the route you still use while living here in CA and continue to use then it must be viable. I will certainly be looking into hefty insurance as you suggested for the rentals which will all be out of state and getting my own affairs here in CA in order as some extra comfort. Thank you very much for sharing your experience with me. I truly appreciate it.
Real Estate Agent · Columbus & Cleveland, OH · Member since 2023 · 1k+ posts · 1k+ votes
11mo
Hey Tiffany, a lot of investors based in markets like California and New York are choosing to purchase their investments OOS in the Midwest because of the affordability and numbers making more sense.
I have a ton of clients investing OOS based out of California right now.
1. This is one reason why I only invest passively now. I no longer have any legal liability, nor do I have to sign a personal guarantee for loans, etc. I vet hands-off investments alongside other passive investors in a co-investing club, and we go in on them together.
2. If you're committed to active real estate investing, talk to real estate attorney Nic McGrue. He can help you with the asset protection and anonymity piece, for a reasonable legal fee.
@G. Brian Davis thank you for sharing your path I can completely see the allure of passive investing. I’ve looked into syndicate type scenarios as well, if that is what’s being referenced. I will definitely look into that Lawyer you suggested for liability protections thank you so very much for taking the time to respond. I truly appreciate everybody.
Realtor · Columbus, OH · Member since 2023 · 1k+ posts · 1k+ votes
11mo
From my experience, most out-of-state investors just start simple: buy in your name, get strong umbrella insurance, and keep clean records. Once you’ve got a few deals and real cash flow, then layer in LLCs or a Wyoming holding company. Keep it lean till it’s worth the paperwork.
That’s a really good question Tiffany, a lot of California investors run into that same issue with the FTB fee. Many end up investing out of state using just strong insurance coverage and keeping good separation between personal and business finances instead of multiple LLCs, especially when starting out.
Good afternoon everybody, i've been doing a lot of research on starting a Wyoming holding company and subsequent state specific LLC's beneath it as I am very cautious about protecting my personal assets. I've looked at federal common law super wazoo trusts. But because I live in lovely California, I am feeling extra stressed out about even being able to move forward with the FTB $800 per LLC threat over my head since it's so broad any semblance of managing anything at all is ripe for audit even with RA. I've read most people just say it's unavoidable then I ask how does anybody get anything done when they are just starting if that is the case? I was wondering, what has worked for those of you who do live in California and invest outside of California. Is umbrella insurance enough on the rental properties Ditch the LLC all together? And then is there some other way, that you protect your personal assets here in CA? I want to start investing. I'm looking for some guidance on a successful path through entity set up if at all? Any suggestions would be more than welcome and greatly appreciated.
BiggerPockets has a couple different podcast episodes on asset protection as well! Have you listened to them or reached out to an asset protection lawyer? Might be a bit overzealous for your first rental, but if it makes you sleep better at night then that's worth it
@Kerlous Tadres Thank you for taking time to share your input. At this point, I think that is the path I am going to initially take. It seems the most feasible, thank you so much for sharing your thoughts!! :)
@Arman Ahmed Thank you for taking the time to respond, every bit of input and strategy is very appreciated. The California fee is a nightmare when it comes to multiple LLCs. I'm pretty sure at this point thats what I am also going to do.
@Rene Hosman Thank you for taking the time to respond. If i lived in any other state be a no brainer for me. WY LLC followed by each state LLC the properties are located in but if i did that here, it would be impossible at the start. That's $800 a pop per LLC, no matter the state they are opened in. It would be too stressful and CA is too overzealous. Thank you for the podcast info.
@Rene Hosman Thank you for taking the time to respond. If i lived in any other state be a no brainer for me. WY LLC followed by each state LLC the properties are located in but if i did that here, it would be impossible at the start. That's $800 a pop per LLC, no matter the state they are opened in. It would be too stressful and CA is too overzealous. Thank you for the podcast info.
Yeah it can be intimidating to get started worrying about the risk! If that's what's holding you back I'd really recommend reaching out to an asset protection attorney, it will cost you some money (but it's a legitimate business expense and a tax write off likely for you) plus the cost of the peace of mind may be worth it to you, not to mention paying a lawyer a bit upfront now to have the confidence to get started, if it helps you actually get started, will pay back many times over in the future!
CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
11mo
Great question, and you are definitely not alone feeling overwhelmed by California’s rules.
From a tax perspective, CA-FTB is strict. If you manage an out-of-state LLC from within California, it is considered doing business there, so the $800 minimum tax generally applies. Even a Wyoming holding company won't avoid that if decisions are still being made in California.
A lot of California investors start by holding their first property in their personal name paired with strong umbrella insurance to keep things simple. Once the portfolio grows and the risk or income rises, then adding LLCs in the states where the properties are located can make sense. California may still require reporting if you are actively managing them from here, but by that stage the cost is usually justified by the protection and tax benefits.
I do not want you to feel discouraged. This is definitely doable. We work with many California investors who build successful portfolios across state lines. Sometimes you just need a few experienced professionals who can walk you through the right order of steps so the entity structure grows with you rather than slowing you down.
You are asking the right questions. Keep moving forward, and you will be in a much better position than most who jump in blind. Happy to connect!
@Ashish Acharya thank you so much for the advice and uplifting words. I truly appreciate all the kindness on this forum and guidance. I will surely consider what you have suggested and likely move forward with that route as its been suggested quite a few times. Regardless of my uneasiness and preference for a LLC, since this hiccup is the only thing holding me back, seems i need to move past it to get going.
@Ashish Acharya thank you so much for the advice and uplifting words. I truly appreciate all the kindness on this forum and guidance. I will surely consider what you have suggested and likely move forward with that route as its been suggested quite a few times. Regardless of my uneasiness and preference for a LLC, since this hiccup is the only thing holding me back, seems i need to move past it to get going.
You’re very welcome, and I’m really glad that helped!
That’s exactly the right mindset, don’t let the California rules hold you back from getting started. You can always adjust your structure later as your portfolio and income grow. The most important thing right now is taking that first step and getting a property working for you.
Once you’ve built a bit of momentum, we can revisit entity setup, tax planning, and liability protection to make sure everything scales the right way.
Wishing you the best as you move forward, and happy to connect anytime if you want to talk through your next step in more detail.
