San Francisco, CA · Member since 2017 · 74 posts · 64 votes
Hi bp:
So far I have two rental properties, I'm getting more this year and next year so i am seriously considering opening an LLC for better protections.
I live in CA, rental property is in TX, MO, and considering buying in FL soon, So where should I file my LLC? In CA or one of these states?
What are the pros and cons in filing in CA vs other states( tax advantage, overhead, filing fee, ongoing fee, troubles, etc) please enlighten me, thanks bp!
@Chingju Hu what you should really find out is if you need an LLC or not. A lot of rookies on this forum will insist that you need one, even though they cannot tell you why. They may not even own a property. The problem that you run into with owning property in numerous states is that each state will want you to file a state income tax return. This will get complicated. An LLC is not necessary and it doesn't provide the protection that people claim. What you need on each property is good liability insurance coverage. Once you get over $1M of net worth, you should shop around to find an umbrella policy. This should cost about $300 per year. With good liability and an umbrella policy, your assets are covered very well. Once you get very wealthy, you may consider putting your assets into a trust and you as the trustee. This is a hassle, but separates your investment property from your personal property liability.
But then past that, if you do decide you want the LLC, I would advise you to not take any advice from anyone on here. The only person you should be asking that question to is you (hopefully real estate friendly) accountant.
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 be deemed to be "doing business" in California and therefore 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 one of those other states, you will need to register it as a foreign LLC in California. Though, this process will be the same for each of the states (if you created a CA LLC you will need to register it as a foreign LLC in the state in which you are doing business/holding property). This means that you will need to pay registration and filing fees in at least CA, TX, and MO, plus FL if you purchase there. You can do this all with one LLC if you want. Be sure to tell your accountant that you now need to file non-resident income tax returns in each of these states as well (Texas has no income tax so you might be off the hook there, as well as Florida). 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. So even if you pick a state with stronger protections like WY or DE, the cause of action arose in the state where the tenant fell, so likely that the court where the accident happened would have jurisdiction. In that regard, maybe just go with the state where you find the best attorney to draft it for you who you trust and won't cost you too much. I would advise against forming the LLC on your own with such a complicated situation. Good luck!
*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.