Beginning Investor Location of LLC

6 Replies

I have been reading books and watching podcasts for the last few weeks. As I have been watching and reading and LLCs have been brought up. I have noticed their is a Rec commendation out there to start your first LLC in a state that has one either anonymity or two a charge order or both. That before you form the LLC in the area you plan to invest in, you need to ensure that LLC for the specific stare has external asset coverage. If not you should form your first LLC in Wyoming or Nevada. Has anyone else heard this from an attorney or another investor recommending this formation process? For instance I live in Washington state and I know the markets here right now are fairly high for a beginning investor especially in the Seattle area. So after reading Bigger Pockets books and watching podcasts I thought it might be good to start in the mid west: IL, IN, OH, WI or in the south east AL, SC or AR. I realize I would have to form an LLC in the state I choose to start investing with, but should not first from an LLC in one of those states mentioned above and do I still need to form an LLC in Washington? Thank you in advance for any advice Respectfully, Anthony Wright

From a tax perspective there's no advantage.

I'm not an attorney, so I can't speak to the legal side.

I think the K.I.S.S. ideology goes a long way with beginner rental property entity structuring.

For example: if I was just starting out and buying properties in the Indianapolis metro, I'd form an Indiana LLC to buy up the properties and call it a day. Sure, you can spend days drawing lines that connect boxes on some Donald Trump level real estate empire org chart in an effort to gain anonymity and avoid liability, but, at the end of the day, what protects business owners is adequate insurance and acting intelligently.

"I realize I would have to form an LLC in the state I choose to start investing with"

This isn't true. You could form an Alaska LLC and buy property in Hawaii with it if you wanted to. You would most likely have to register the Alaska LLC as a "foreign" LLC with the Hawaii Secretary of State, however.

@Anthony Wright

You are almost certainly referring to webinars by Clint Coon, an attorney from Anderson Advisors - a company (in)famous for recommending highly complicated entity structures from your Day 1 in real estate business. I'm sure there're benefits for such solutions for some investors, especially the bigger ones. I suspect that for a beginner investor, they're an overkill. However, I'm not an attorney, and my opinion on legal protection is not worth much, if anything.

I'm in total agreement with @Eamonn McElroy : practice KISS. It may even be no LLCs at all initially, as long as your attorney approves of it.

Also, for a beginner investor, I highly recommend starting investing in your own backyard - i.e. driveable distance from where you live and work. Not in other states.

Am I right that in thinking you haven't invested at all yet and are trying to set up an LLC before you do? Honestly, that is beyond putting the cart before the horse.

Are you planning to buy rental properties? If so, not only do you not need an LLC but an LLC is going to make your entire investment more difficult.

Here is an initial insight as to what all comes with it-

The comments have a lot in them too. But one thing I don't think I said in the article is really about it putting the cart before the horse. There's so many other things you need to learn and worry about long before putting any brain matter towards figuring out LLCs. Plus, no one other than your accountant (hopefully an investor-friendly one) should be advising you on all of that.

Lawyers recommend LLCs, accountants generally do not with investors starting out. A LLC is likely a mistake at this stage. Start investing first then see if you want or need to add the additional costs and hassles associated with having one.

A LLC is a want not a need.

I totally agree you don't need a LLC at this stage in the game.

LLCs are useful in Hawaii in avoiding the HARPTA (5% withholding when you sell a property as an out-of-state resident), provided the LLC is registered in the state of Hawaii.