Investor · CA · Member since 2018 · 22 posts · 12 votes
Hello
I live in CA, and if I am going to invest multi family property in FL or any other state. WHERE SHOULD I REGISTER THE COMPANY TO HOLD THE PROPERTY? In CA or the state where the property is?
@Sean Zhang We hold all of our out-of-state properties in an LLC of the state the properties are in. Ohio properties in Ohio LLC, New York properties in New York LLC, etc. We still have a parent/primary LLC in the state we live in that acts as a holding company for all the OOS LLCs.
@Sean Zhang We hold all of our out-of-state properties in an LLC of the state the properties are in. Ohio properties in Ohio LLC, New York properties in New York LLC, etc. We still have a parent/primary LLC in the state we live in that acts as a holding company for all the OOS LLCs.
Are you looking to invest on your own or as a partnership? If you're syndicating, keep in mind each individual acquisition will likely have it's own LLC in the state where it's acquired anyway.
Most states require that you own the property with a "domestic" LLC or register your foreign LLC. For example, your CA LLC will need to be registered in FL to own FL property. Alternatively, just take title to the FL property with a FL LLC.
The possibilities beyond that set up are essentially endless as you can have an LLC or irrevocable trust owning all your LLCs, etc.
Yes - Follow Sean's advice. We do the same. I know it sounds like a pain - but it actually simplifies things in the long run - and we found that Lenders and local town PREFERS dealing with what looks like a LOCAL business. This was especially true in Vegas market. On thing you may want to research, is to make sure the LLC managers of the State LLC is different from the PARENT LLC. If they are identical, it could be seen as a 'pass through LLC' and you could lose some protections. (not a lawyer or CPA - so get better advice on that piece!)
@Sean Zhang We have an LLC in each state we have properties and our properties are purchased with those LLCs. We then have a parent LLC own all the state LLC that own the properties.
@Sean Zhang keep in mind, if you register in CA and hold the asset in Florida, you will likely need to register as a foreign entity in Florida. This is just another fee you would have to pay. It makes sense to title the asset in a state where the property is located.
California is a sort of beastly state 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.
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. 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.
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 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.