I'm still in the learning stages of SFH investing, particularly out of state (I'm in the SF Bay Area), but I wanted to make sure I understand the basics of opening an LLCs for REI purposes. I know the basic reason to place property inside of one is asset protection. And I'm a tax professional, so I understand the taxation issues. But I'm looking for opinions on if it's a actually a good idea for someone living in CA.
if I create an LLC in another state, I would still have to pay CA $800 for every LLC I own. Out of state LLCs are treated as foreign LLCs in CA. So already, that's a huge expense if I'm cash-flowing say $1,200 a year.
Also, please correct me if I'm wrong, but there are potential problems with owning property in an LLC:
- It's harder to get a SFH loan for anything being bought by an LLC.
- Additionally, it would be harder to refinance/pull cash out if it's in an LLC.
- There's a chance, albeit apparently small, that a lending company would call the loan due if you change title/ownership from your name to an LLC.
Am I missing anything here? For CA residents, maybe a basic umbrella policy would suffice?
@ neil you have covered pretty much everything. The reason though why many place a property in a LLC is to create separation from the property in the case of litigation. I do believe the umbrella policy is a must. another option may be a trust to create separation. I have heard of people using that to create some separation along with a umbrella policy. I know it is a lot easier to move a property in and out of trust.
do not construe this for legal or tax advise just another option i have heard others use.
Free eBook from BiggerPockets!
Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!
- Actionable advice for getting started,
- Discover the 10 Most Lucrative Real Estate Niches,
- Learn how to get started with or without money,
- Explore Real-Life Strategies for Building Wealth,
- And a LOT more.
Sign up below to download the eBook for FREE today!
We hate spam just as much as you
Join the Largest Real Estate Investing Community
Basic membership is free, forever.