Out of State Investing: LLC in Home State or Investing Location?

9 Replies

Hi all, I currently live in Philadelphia and am planning on investing in the city over this next year under an LLC with a partner. However, I'll likely be moving to Maryland in the next year where my business partner currently lives. We plan on continuing to invest in Philly even after the move. Would it make more sense to open an LLC in PA (where we will be investing and where I currently live) or in MD (where my partner lives and where I will be moving)?

Of note, it looks like we would need a PA address to have a PA LLC. Obviously I can use my home address for the next year, but not sure what I would do in a year.

Thanks in advance for the help!

@Kealan Hobelmann - As a Lender, traditionally we would need a 'Certificate of Foreign Qualification" if your LLC is doing business outside the registered state. “Foreign qualification” refers to registering your business with the secretary of state office of another state. It enables your company to legally pursue growth opportunities across state borders without having to incorporate a new business entity. It’s typically the first step in expanding a business to a new state.
Your welcome- If you don't have any time restraints with Business needing to close in the near future , with MD being home base long term, I would lean towards getting the MD LLC established and work off of that. Just from my lenders POV if your securing Capital down the road.

@Ed Burk That makes sense and should be doable for us. In that case, would it be easier to look for lenders in MD (where the LLC would be located), or in PA (where the properties are)? How would you view both situations from a lender's perspective?

It wouldn't matter initially where the LLC was established, being in both instances, the entity(s) would be reviewed in the same capacity. The only single difference, would be if the "Certificate of Foreign Qualification" MD in PA or PA in MD is in play. An established LLC say in PA for a PA property would be simpler being it needs nothing in addition. Does that help?

@Kealan Hobelmann we manage for plenty of out-of-state investors holding with LLC. I would say 75% of them have a Pennsylvania LLC in place to hold PA property. I think PA overall is a friendly LLC state, and you can probably avoid filing taxes in two states this way (I'm not fully sure).

There are virtual mailboxes in town that you can get for a local address. Whether or not they can 'legally' be a registered office for the LLC probably varies by the services provided. Plenty of owners use these virtual offices with services that scan and email every piece of mail directly to them. Hope this helps in your planning.

Originally posted by @Kevin M. :

There are virtual mailboxes in town that you can get for a local address. Whether or not they can 'legally' be a registered office for the LLC probably varies by the services provided. Plenty of owners use these virtual offices with services that scan and email every piece of mail directly to them. Hope this helps in your planning.

That is very interesting! I'm inclined to set up a PA LLC if there is a scenario where that makes sense since I'm living in PA currently and it just seems cleaner, but I wanted to make sure I wasn't going to run into issues when we no longer have a PA mailing address. A virtual mailbox/office seems like a great solution.

Are there any companies that stand out? Doing a brief search looks like there are a variety of options. Also I noticed that many of them offer "registered agent" services (as opposed to simple mail-scanning/forwarding services) which sounds like a legal way to maintain a virtual address.

Thanks for the advice, super helpful!

 

@Kealan Hobelmann

Your LLC need to be registered in the state where the property is to be able to act in that state.

Now the LLC could be originally filed in that state or be an out of state LLC that file as foreign registered in addition to it. However why would you want to pay registration in two state when you only need in one.

Also the most important part is that while all state are offering the same inside liability protection. There are wide differences regarding outside liability. So it is often recommended to open a holding LLC in a strong state like WY and to have then all the property LLCs in other state owned by the holding LLC. You get the local LLC required for operating and the asset protection of WY at the same time.

Yep I agree, why register as a foreign entity when we could just have it in the same state as the properties from the beginning. That's a good idea regarding a holding LLC, I'm familiar with that concept. We will probably opt for a simple structure for now, but as we scale, that certainly starts to be worth the added complexity. Thanks for the advice!

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