Is it Wise? Out of State LLC for Baltimore Property

19 Replies | Baltimore, Maryland

I'm looking to purchase my first rental property in Baltimore very soon (like a couple of weeks). The property does not need any work (just carpet). I am nervously excited. Do you think it is wise to purchase the property for CASH via an out of state LLC or should I register a new MD LLC? I think I recall reading somewhere that out of state LLC's get taxed higher. Or out of state owners in general get taxed higher/pay more fees. Does anyone know if what I recall is true? I have plenty of family in Maryland that are willing and able to register the LLC and partner with me, if necessary. Thanks!

Side note: the property is located in the Coldstream - Homestead - Montebello (21218) neighborhood. Does anyone know if that is a good location to attract tenants? Property has 3 bedrooms 1 1/2 bathrooms. 

MD is such a pro-business state I am surprised you would even ask such a question! I mean they are 'open for business'.../endsarcasim

The following 3 links should tell you what you need to do more in depth.

http://taxes.marylandtaxes.gov/Resource_Library/Tax_Publications/Tax_Tips/Business_Tax_Tips/bustip13.pdf

http://dat.maryland.gov/businesses/Pages/Maryland-...

//dat.maryland.gov/businesses/Pages/Non-Maryland-(Foreign)-Business-Entities.aspx

(add http: to the site above, BP auto formatting was messing up link.)

I do not know if any of those links will answer your questions, but it seems you either set up a MD LLC or you pay to get yourself (LLC) registered with SDAT. Hope that is as clear as mud for you.

And 21218 was an area I am looking at investing in here also, so I guess you have 1 vote of, eh why not, in your camp.

Hey @Candace Noel , we have actually done both methods. We've got a California LLC that is registered to do business in the state of Maryland and then we've also got a Maryland LLC that we formed.

Our California LLC has more in it than just Maryland properties, while our Maryland LLC only contains Maryland properties. As long as you register your out of state entity with SDAT, I'm not aware of any additional tax implications. Could be wrong here, so someone correct me if you know better.

You definitely want the asset in an LLC that is registered or formed in Maryland though because if you have the property in your name you will be subject to an additional 8% or 8.5% tax holdback upon sale.

Originally posted by @Brad Cogswell :

Hey @Candace Noel , we have actually done both methods. We've got a California LLC that is registered to do business in the state of Maryland and then we've also got a Maryland LLC that we formed.

Our California LLC has more in it than just Maryland properties, while our Maryland LLC only contains Maryland properties. As long as you register your out of state entity with SDAT, I'm not aware of any additional tax implications. Could be wrong here, so someone correct me if you know better.

You definitely want the asset in an LLC that is registered or formed in Maryland though because if you have the property in your name you will be subject to an additional 8% or 8.5% tax holdback upon sale.

Brad, THANK YOU! I think what I was recalling from a previous post was if it was in my personal name and not in an LLC I would be subject to the additional tax upon the sale of the property.

@Michael Randle hahaha Thank you for all of the links! I'm going to take a look at them momentarily. I think Brad touched on what my confusion was.... "being taxed an additional 8%+ if the property is in my personal name at the time of sale" especially since I'm not a Maryland resident. :-)

Hi @Candace Noel - would definitely recommend an LLC to manage the investment from a tax and liability perspective.

Would also love to chat as I'm actively looking at purchasing my first property in Baltimore and it would be great to compare notes. Out of market for me as well so looking to learn as much as possible before moving forward. 

No, avoid maryland llc. Try delaware. Interestingly, a maryland llc may not limit liability. In maryland, Those that run the llc can be individually liable for the actions of the llc. Aka, more like a C instead of an LLC.

Attracting tenants is largely based on the house, particularly whats inside it. Whats in yours????

@Candace Noel In MD and most other states if you do business in the state then you are required to register the company with MD as a "Foreign" company. The cost is the same for in state companies and out of state companies.  no you are NOT taxed higher as a Foreign company. 

In addition to registering you need to pay $300 a year to maintain it. Again it is the same for in and out of state companies. 

My guess is what you are referring to is that when selling any out of state owner is subject to a withholding tax - about 7.5%???  This withholding is NOT a tax it is just withheld and used as a credit against any tax you might owe on the sale ie: capital gain.  If it is not needed to cover the taxes it will be refunded, although you will have to file a return to get it back. 

Bottom line I see no reason NOT to create a new LLC specifically for holding MD properties.

As far as Coldstream Motebellow the area varies from OK to horrible.  I was just on Homestead today.  each street is different. In general the lower the address number the better.  For example the 700 block is better than the 1700 blk.  if you are on the numbered streets the higher the number the better. 28th street is not as nice as 32nd street.

@Ned Carey , thank you!! That is exactly the information I was looking for! And, OF COURSE, the property I'm interested in has a HIGHER address number (1700 block)! It is closer to Clifton Park. :-( My plan is to go and take a look at the neighborhood and the property tomorrow when my brother is available since he will more than likely be the one doing any work to the property.

Originally posted by @Taylor Wrice-Brooks :

@Candace Noel - Hope all is well! Did you ever invest in Baltimore or Maryland? Also, did you end up getting the OofS LLC for Baltimore Properties?

Hi Taylor, no....I began exploring Hagerstown and Harrisburg, PA. 

 

Originally posted by @Patrick Orah :

@Candace Noel, did you purchase any property in MD? Are there any other zip codes or blocks in Baltimore that are good to invest in?

Dont look at Baltimore zipcodes to buy houses, zipcodes can be tricky in Baltimore.

Neighbourhoods, divisions, sub divisions, yes zipcodes can make you lose money on Baltimore if you dont know it.

 

@Ozzy Sirimsi thanks for your reply. I am not familiar with the Baltimore neighborhoods. I am not sure what areas to stay away from and where to look into. From the research I have done Baltimore, in general appears, to be one of the stronger cash flow markets which fits my strategy but it does not appear to be the best appreciating market. Am I wrong in that assessment? With properties currently propped up, are there still good deals? If so what are the best ways to source for deals in this market. I am primarily looking on Zillow for small multi family, starting in Baltimore, but anything remotely close to a good deal is scooped up quickly.

There are hand full of investor/ realtors here, myself included.

Approach any of them, ask questions, work whoever feels like that would be the best help. Hust going through zillow adn looking at houses where you have no idea of the location, you can easily lose money in baltimore.

There are many investors in Baltimore invest money just to get good cash flow, so what you said is kinda through. Most people do forced appreciation by renovations.  

There are other areas that houses will appreciates but you need to spend more

you decide which way you want to go.