Long distance investing - Legal Structure

5 Replies

Hi BP,

For those doing out of state investing, where have you incorporated your LLC? Have you chosen your home state or the state you plan to invest in or another state with favorable corporate law (i.e Delaware)?

Also do you have you done this online or spoken to an attorney to form the LLC?

Thanks for your responses!

Hey @Maricruz Romero ! First, it's always best to consult with a CPA and an Attorney about your scenario, but I personally have just done my home state, although there are some benefits of choosing other states.

For several of my LLC's I just had legalzoom make it up for me!

Originally posted by @Maricruz Romero :

Hi BP,

For those doing out of state investing, where have you incorporated your LLC? Have you chosen your home state or the state you plan to invest in or another state with favorable corporate law (i.e Delaware)?

Also do you have you done this online or spoken to an attorney to form the LLC?

Thanks for your responses!

 Hey, really good question! I see it float around from time-to-time on the forums, but I think this is one people don't ask enough! 

My answer would generally be: wherever it is cheapest and has the lowest requirements! The trick is that when you have an investment in one state and the LLC in a separate state you need to start worrying about the additional costs of the foreign filing fees. However, you can work around this by using a land trust - which is a powerful tool.

The Land Trust is a great tool for many reasons. I usually don't dive into the land trust on the forums, but I have a few minutes this morning and will take a stab at it.

  1. Ideal Financing Option: When you purchase properties with the intention of placing them in an LLC, you can actually use the Land Trust to enable that. If you try to transfer a property directly into an LLC, many lenders will try calling the note by using the Due on Sale Clause. However, if you transfer the property into a land trust and assign the LLC as the beneficiary of the trust because it is an exempted transfer thanks to the St Germain Act. This means that you can keep the great financing options available in your own name while still retaining the liability protection of the LLC.
  2. Avoid Foreign Filing Fees: The Land Trust, when established as mentioned above, is considered the entity that is operating the property, not the LLC. That means that you do not have to pay a foreign filing fees involved, you only pay the feed for the state in which you established the LLC.
  3. Anonymity: While forming the Land Trust you can actually have someone sign as a "nominee trustee." If you have your attorney sign this for you upon creation, people will only see your attorney's name on public record. When they request to review the document they will need to deal with attorney-client privilege, which can be a daunting and expensive task. It essentially reinforces your asset protection from the LLC.
  4. Estate Planning:  Because the Land Trust is considered an estate planning tool, it makes the day you set up your estate plan much more bearable! Since the structure already exists, all you need to do is write it all out.

These are some of the benefits I have found, and seen, from implementing Land Trusts with their LLCs. So tying back directly to your question: you can create the LLC wherever you find most beneficial. I would recommend doing a lot of research, or finding an experienced attorney, who can help you identify the best states to work from. You can also check out this article for a better idea on which states are ideal.

This is not legal advice, just my opinion as a real estate investor.

@Scott Smith thanks for your thorough response. Will do some further research on trust and bring it up while consulting an attorney. It does seem like a good option for someone who plans to do investing in multiple states. Also planning to listen to podcast 109! Thanks again.

Originally posted by @Maricruz Romero :

@Scott Smith thanks for your thorough response. Will do some further research on trust and bring it up while consulting an attorney. It does seem like a good option for someone who plans to do investing in multiple states. Also planning to listen to podcast 109! Thanks again.

 Hey, sounds great! Feel free to tag me if you ever have more questions.

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

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.

We hate spam just as much as you