NJ vs Arizona LLC - Flip in Arizona

5 Replies

I am working with a couple of investors who are based out of New Jersey and want to purchase, rehab, and flip a property in Arizona. One of the investors is going to contributing cash and one is going to take out a mortgage for the property. What would be the best structure to set up this LLC and in what state?

- Do we set up the LLC in Arizona or New Jersey?

- Do we purchase the house via the LLC and have the one investor 100% guarantee his personal mortgage?

- Do we have the one investor purchase the home and the LLC will collect and contribute the other capital required for the investment?

All parties are friends so all will do whatever is in everyone's best interest and most protection. 

@Matthew P. the first question is whether they plan to make any future investments. If they do, and the majority are likely to be in NJ then a NJ LLC might be their best option. There are other considerations of filing to do business in AZ as a NJ LLC.

As for how to structure the deal a lot depends on the nature of the amount of asset protection the members of the LLC want. While the member making a personal guaranty has no corporate veil protection for the mortgage they, and the other members, would for any other liabilities of the LLC. I usually advise clients to use the business entity as much as possible if they decide to create one.

If there's any other way I can help feel free to ask.

Jon

@Matthew P.

1. They are not going to be friends for long - you don't do business with friends, and flipping is a business.

2. But if you want to proceed, read How to Effectively Conduct Joint Venture Agreements as a Real Estate Investor and taking-on-partner-s-and-limiting-our-liabilites

3. Checkout similar threads on the matter: how-do-i-properly-construct-a-purchase-with-a-partnership and create-an-llc-for-first-partnership-best-way-to-do-so

@Jonathan Herron

The personal plan is to do many real estate deals in NJ but for this group of people, it is just this one project in Arizona.  

The members of the LLC will want a good amount of protection against any other investments and personal assets.

What would we need in terms of an Op Agmt specifically in this type of situation? 

@Matthew P. Most of my out of state clients form AZ or DE entities to hold their properties here in Arizona. If you use a NJ or other ”foreign” entity you would likely need to register to do business in the state. That doesn’t constitute legal advice but I’d be happy to refer you to my colleague here at my firm that handles LLC formation and partnership agreements if you want to send me a dIrect message, and he can advise as to risk and potential liability issues. Thanks, Cameron Carter

That would be great. I think the right move is to establish the LLC in AZ.

The only issue I could see arising is not having a registered agent in the state of AZ.  I'm sure there are companies that could handle that for you for nominal fee.