Buying Property Out of state - California Resident.

5 Replies

Been listening to biggerpockets for awhile, and am finally ready to make the jump into real estate.

I currently live in California, where buying properties to cashflow is just not practical, and am looking to invest out of state most likely in the Texas or Florida areas.

This year, my plan is to purchase a multifamily home in one of these locations.  I am currently more interested in a great cashflow as opposed to appreciation.

I am not sure if i should open up an LLC or not. It is to my understanding that California is pretty harsh on LLC's which might not make it financially worth it for me to use one.


let me know what your thoughts are.

Thank you everybody.

-Eli

Elijah, it's my understanding that it doesn't really matter what state you live in, you can open up an LLC in any state. Ie if Nevada is more LLC friendly, just have your attorney setup the LLC there. However, just know it's not necessary to have the property in an LLC, many just have large umbrella policies to cover them.

Hey Elijah,

Holding property in an LLC does provide liability protection but the cost might not be worth it starting out. I also live in CA and have rentals in TX and AZ but I just have an umbrella policy that covers me. The cost is about $150/yr for 1 million of coverage.

I'm sure you will get some great advice her on BP but you can also reach out to a real estate attorney and get their advice.

David

David, 

Thanks for the great advice on this.  Ill look more into umbrella policies.  Definitely more research I will have to do on this topic.  I also assumed taxes would be much simpler if i separated my business and personal income via an LLC.

Originally posted by@David Sigler :

Hey Elijah,

Holding property in an LLC does provide liability protection but the cost might not be worth it starting out. I also live in CA and have rentals in TX and AZ but I just have an umbrella policy that covers me. The cost is about $150/yr for 1 million of coverage.

I'm sure you will get some great advice her on BP but you can also reach out to a real estate attorney and get their advice.

David

Originally posted by @Elijah Skinner :
David, 

Thanks for the great advice on this.  Ill look more into umbrella policies.  Definitely more research I will have to do on this topic.  I also assumed taxes would be much simpler if i separated my business and personal income via an LLC.

Originally posted [email protected] Sigler:

Hey Elijah,

Holding property in an LLC does provide liability protection but the cost might not be worth it starting out. I also live in CA and have rentals in TX and AZ but I just have an umbrella policy that covers me. The cost is about $150/yr for 1 million of coverage.

I'm sure you will get some great advice her on BP but you can also reach out to a real estate attorney and get their advice.

David

From a tax perspective, it should really be the same if you had an LLC vs. not. The calculations are the same (pass through). LLC's main purpose is really to help provide liability coverage, and is useful when you start to expand more. I'm in agreement with David!

@Elijah Skinner You will need to have the LLC set-up in the state you buy the property in. I would wait to file the LLC till you have completed enough due diligence you feel sure the sale will go through. The only catch with that is some state's lead time to complete the filing could be longer than the remaining time under contract. Also, if you still live in CA then Cali will want you to pay the $800 franchise tax even if the LLC is out of state. I think there is a chance CA wouldn't know any better if you kept the LLC as a disregarded entity. A CPA, EA or attorney would know best.