Best State To Open An LLC
Member since 2026 · 1 post · 5 votes
Best State To Open An LLC
Most Popular Reply
Jimmy LieuBusiness Member
Real Estate Agent · Columbus, OH · Member since 2019 · 3k+ posts · 2k+ votesQuote from @Brendan Mattias:
Hello I'm new into real estate investing I live in California which I feel like is a difficult state to start my portfolio without a whole lot of Capital. And I think buying out of state would be a smarter way to start my portfolio. Just wanted to get some advice on where would be the best state to open up my first LLC if anyone has any advice or opinions for me I would very much appreciate that. Thank you
-Brendan
Jimmy Lieu, Red 1 Realty4.9119 Reviews
20 Replies
- 5moGreg ScottPro MemberRental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
You picked the worst state to live in if you want to own real estate in an LLC. If you form an LLC in a different state, you get to pay California $800 annually for the right to have that LLC.
If you don't have a lot of capital, why do you feel you need an LLC? You may be better off just beefing up your liability insurance coverage.
- 5moG. Brian DavisPro MemberInvestor · Hatboro, PA · Member since 2016 · 2k+ posts · 842 votes
Buying out of state can work really well, but your team matters more than the property. Start by picking a market with strong rental demand, then focus on finding a solid property manager, they’ll be your eyes and ears. If you can, visit at least once so you understand the area.
Keep your first deal simple and make sure the numbers work with today’s rents, not projections.
On the LLC side, most investors either form it in their home state or in the state where the property is located. Trying to use a different "business-friendly" state usually just adds complexity.
- 5moBradley BuxtonBusiness MemberReal Estate Agent · NV · Member since 2023 · 1k+ posts · 711 votes
Many LLCs are formed in Nevada or Wyoming because of the protections and the difficulty of pursuing claims. Nevada might be an option for you to invest out of state. Not familiar with WY.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes5mo
I wouldn't open a LLC and own property in your name - if you open LLC out of state California will still find a way to charge you the $800 a year...
7e investments53 Reviews - 5moJimmy LieuBusiness MemberReal Estate Agent · Columbus, OH · Member since 2019 · 3k+ posts · 2k+ votesHey Brendan, welcome to BP! If you’re thinking about starting out-of-state and setting up an LLC, most investors go with the state where the property will be located because that’s where your rental income and legal obligations actually happen—it makes taxes, liability, and local compliance a lot simpler. You can technically form an LLC in another state, but that usually means registering as a foreign LLC in the state where your property is, which adds extra fees and paperwork. A lot of folks stick with the state of the property and just use a simple single-member LLC structure to start, then expand as they grow. The key is keeping it clean for taxes, liability, and property management from the start, especially when you’re investing out-of-state. Happy to connect and answer any questions you have!
Quote from @Brendan Mattias:
Hello I'm new into real estate investing I live in California which I feel like is a difficult state to start my portfolio without a whole lot of Capital. And I think buying out of state would be a smarter way to start my portfolio. Just wanted to get some advice on where would be the best state to open up my first LLC if anyone has any advice or opinions for me I would very much appreciate that. Thank you
-Brendan
Jimmy Lieu, Red 1 Realty4.9119 Reviews - 5moMike PaolucciBusiness MemberRealtor · Columbus Cleveland Dayton, OH · Member since 2022 · 490 posts · 549 votes
Quote from @Brendan Mattias:
Hello I'm new into real estate investing I live in California which I feel like is a difficult state to start my portfolio without a whole lot of Capital. And I think buying out of state would be a smarter way to start my portfolio. Just wanted to get some advice on where would be the best state to open up my first LLC if anyone has any advice or opinions for me I would very much appreciate that. Thank you
-Brendan
Lots of people look to Wyoming to create an LLC, or the state in which they're investing.
No matter where you create the LLC, CA will still charge you $800/year simply for owning it and being a CA resident.
Reafco - Mike Paolucci 512 Reviews - 5moArman AhmedPro MemberReal Estate Agent · Columbus Cleveland Dayton, OH · Member since 2024 · 2k+ posts · 904 votes
Quote from @Brendan Mattias:
Hello I'm new into real estate investing I live in California which I feel like is a difficult state to start my portfolio without a whole lot of Capital. And I think buying out of state would be a smarter way to start my portfolio. Just wanted to get some advice on where would be the best state to open up my first LLC if anyone has any advice or opinions for me I would very much appreciate that. Thank you
-Brendan
You’re spot on, California is tough to start with limited capital. A lot of new investors look to the Midwest, where entry costs are lower, cash flow is stronger, and LLCs are simple and cheap to set up. You can buy your first rental or small multifamily without breaking the bank, and having a local boots-on-the-ground team, property managers, contractors, and lenders- makes out-of-state investing feel way more manageable. It’s a smart way to build your portfolio while keeping risk low. - Rental Property Investor · Member since 2018 · 826 posts · 809 votes5mo
As others have stated, don't form LLC as you'll likely create more effort and cost for marginal benefit. You need to maintain everything properly (loan, title, lease, insurance, utilities, etc) under the LLC for proper protection.
do some research on what LLC maintenance entails and then determine if it's right for you. You'll likely find that you need a min net worth to justify a LLC, and perhaps you're a long way away from that amount.
- Flipper/Rehabber · CA · Member since 2023 · 1k+ posts · 1k+ votes5moDisclaimer; Im not a lawyer nor is this legal advice
Quote from @Brendan Mattias:
Hello I'm new into real estate investing I live in California which I feel like is a difficult state to start my portfolio without a whole lot of Capital. And I think buying out of state would be a smarter way to start my portfolio. Just wanted to get some advice on where would be the best state to open up my first LLC if anyone has any advice or opinions for me I would very much appreciate that. Thank you
-Brendan
A California resident with an OOS LLC must register as a foreign entity/foreign llc, pay the same filing fees & obligations as in state. There's lots of info on the internet regarding structure & tax obligations, although I sincerely recommend working with your CPA as to the best structure for you.
From a liability perspective, this too will depend on your specific situation and risk tolerance. Generally speaking, a comprehensive umbrella policy is typically the way many start. Id recommend having a good lawyer, i.e. 1 that is willing to defend your position in a court of law.
- 5moAshish AcharyaBusiness MemberCPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
Hey Brendan,
This is a great question and you've gotten great responses so far. Where you form the LLC matters less than where the property is located and where you live. Gregs answer is spot on, since you're in California, you'll still be subject to CA taxes and likely the $800 minimum franchise tax even if you form the LLC in another state. Although, I wouldn't let this discourage you, we have a lot of clients we work with that live in California and have successful portfolios so there is hope, but it comes with structuring everything efficiently. If you buy out of state, you'll usually need to register there anyway, so forming in a "cheap" state like Wyoming or Delaware can add privacy and protection, but often just adds complexity without real savings. Getting that liability insurance coverage "beefed up" might be a good move especially since you're starting out.
Most investors keep it simple and either buy in their personal name first or form an LLC in the state where the property is located once they have a deal under contract. Focus more on finding a strong market and a good deal, then structure around it. And I like G. Brian's advice about building a good team around you, a lender who knows investing and creative financing, real estate agent who can help you find good deals, and eventually a CPA who specializes in real estate.
Also keep in mind LLCs don’t reduce taxes by themselves, they’re mainly for liability protection like many others mentioned above. Tax savings come with strategies like depreciation, cost segregation, or potentially S-Corp planning depending on your situation. If you're looking to save and really grow your portfolio, you'll definitely want to learn more about all of these strategies. Good luck and happy to connect!
INVESTOR FRIENDLY CPA®5241 Reviews - Specialist · Long Beach, CA · Member since 2011 · 873 posts · 393 votes5mo
From my personal experience, having the LLC formed in the state where the property is located is what you want. Doesn't make sense to own a property in Texas but have it in your California LLC or Nevada LLC. I have a company that I can refer you to that can help explain how they do it and set it up for you as well.
- 5moWale LawalBusiness MemberReal Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
On your first deal, I wouldn't make it to complicated with an LLC-most investors buy in their name for better cash and then get LLC down the road if it makes sense to do so. If you do establish an LLC, it's better to establish it in the same state as the property location versus where you life. More important is choosing a strong cash flowing market-state of the art implementation will far overshadow your entity early on.
Good luck!
NETWORTH BUILDERS5236 Reviews - Member since 2026 · 2 posts · 0 votes5mo
In most cases, it makes the most sense to form your LLC in the state where the investment property is located. Forming in a "tax-free" state usually does not give real estate investors much benefit, since LLCs are generally pass-through entities and the income flows through to the owner. Also, if the property is in another state, you will likely still need to register there as a foreign LLC, which means extra fees and compliance. For most investors, forming in the property's state is the simpler and more cost-effective option.
BusinessRocket Pro Tip: Real estate holding LLCs typically should not elect S corp tax status. Keeping the default tax structure usually allows investors to avoid self-employment tax on rental income.
- Inland Empire, CA · Member since 2017 · 151 posts · 79 votes2w
Hi Brendan, good to meet you. What part of CA are you in? My partners and I are in SoCal. We invest in larger multifamily out of state, but we always try to connect with locals who are also in the space. Happy to connect if you'd like
- CPA and Attorney · San Diego, attorney · Member since 2022 · 301 posts · 219 votes1w
California is generally more cumbersome than other states when it comes to taxes and filings. Even if you create a non-CA LLC, if you are managing the business from California, you may be deemed to be "doing business" in California and therefore likely subject to CA taxes. California charges a minimum tax of $800 a year per LLC, and more if you have gross receipts in excess of $250k. So, if you create an LLC in another state, may need to register it as a foreign LLC in California. Though, this process will be the same for the other state (if you created a CA LLC you may need to register it as a foreign LLC in the state in which you are doing business/holding property). This means that you may need to pay registration and filing fees in at least 2 states if you don't buy CA property as a CA resident. Recall that most states require you to have an in-state agent for service of process, so each state that you register in could increase annual fees as well.
Be sure to tell your accountant that you may now need to file non-resident income tax returns in each state where you own property as well. CA taxes residents on worldwide income but may provide a credit for taxes paid to other states.
It is possible that the state where the property is located is where lawsuits would be brought if they are something for personal injury like a trip and fall or something of that nature because the “cause of action” arose in that state. So even if you pick a state with stronger protections like WY or NV, the cause of action arose in the state where the tenant fell, so it could be that the court where the accident happened has jurisdiction. Of course, with all things, the answers to all these matters will depend on the circumstances.
California tends to have more laws on the books and requirements and restrictions that it can be a good idea to form a CA LLC for out of state property so that you as a CA resident are covered, and to try to have your contracts fall under the purview of CA courts. It also is helpful to have a California LLC in case you ever sell that property and move into another state so that you do not need to form a new LLC altogether with new operating agreement, just re-register in the new state as a new foreign LLC. Also, the state of formation is likely where internal disputes would be brought among LLC members, so if you and a partner and/or spouse live in CA, you probably want to arbitrate in CA if the two of you had a disagreement. It may also make it easier for your estate planning attorney to line up ownership with your estate plan, assuming a CA-estate plan if a CA resident. But, that is not always the right answer and you should speak with someone familiar with your personal situation to get advice specific to you.
*This post is informational only and is not to be relied upon. Readers are advised to seek professional advice. This post does not create an attorney-client or CPA-client relationship.
- 1wJason MalabuteBusiness MemberAccountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 897 votes
Brendan, the state on the formation paperwork usually matters a lot less than where you actually run the business from and where the property sits. Living in California, if you are managing everything from home, the state can still treat the entity as doing business here, which generally means a California filing plus the $800 annual minimum no matter where you buy. And once you own property in another state you will often need to register there as well, so a Wyoming or Delaware setup frequently just buys you a second set of filing and registered agent fees instead of real savings. Worth remembering too that the LLC by itself is not what lowers your tax bill, it is a liability tool, and the actual savings come from things like depreciation, cost segregation later on, and possibly S corp planning depending on your situation. Plenty of California investors do well out of state, they just find a strong market and a good deal first, lean on solid insurance coverage, and structure around it. Where you land really depends on your own facts, so run it by your own CPA or tax advisor before you file anything.
Malabute & Company CPAs525 Reviews - 1wJoseph ScoreseBusiness MemberBanker · Philadelphia · Member since 2009 · 2k+ posts · 629 votes
Brendan, welcome to real estate investing. One thing I would consider is choosing the investment market first and the LLC structure second.
There really isn't one universal "best state" to form an LLC. If you're buying rental property outside California, the right structure can depend on where the property is located, where you're conducting business, financing requirements, taxes, asset-protection considerations, and your long-term plans. Forming an LLC in a state simply because it is considered "business friendly" can sometimes create additional registration, filing, and tax obligations elsewhere.
Before forming anything, I would identify 2–3 markets that fit your investment strategy, then speak with a real estate attorney and CPA who understand both California and the state where you plan to invest.
From a financing perspective, I would also determine your budget, liquidity, credit profile, target rents, and whether you're pursuing a turnkey rental, BRRRR, or value-add property. Those factors can help narrow down which markets actually make sense.
The LLC is important, but the quality of the deal, market fundamentals, cash flow, management team, and financing structure will ultimately matter much more than where the LLC was formed.
Best of luck getting started, Brendan. Out-of-state investing can absolutely open up opportunities—just build the right team before you buy.
- Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes1w
Quote from @Brendan Mattias:
Hello I'm new into real estate investing I live in California which I feel like is a difficult state to start my portfolio without a whole lot of Capital. And I think buying out of state would be a smarter way to start my portfolio. Just wanted to get some advice on where would be the best state to open up my first LLC if anyone has any advice or opinions for me I would very much appreciate that. Thank you
-Brendan
I can't give you any advice because I'm not familiar with the laws of your home state. It seems as if California has some unique requirements. I can just tell you what we did. (This is over 25+ years)
When we first started purchasing as an Out of State Investor we started our LLC in Nevada and then registered it as an foreign entity in the states that we invested. Then in Illinois, we stopped using the Nevada LLC & started using series LLCs for our investments. We've since graduated to something a little more complex.
- Real Estate Consultant · Norfolk, VA · Member since 2017 · 342 posts · 200 votes3d
As a real estate investor, I started investing in my own backyard, so I formed my LLCs in the state where I live and where my properties are located. That made the decision pretty simple for me and allowed me to focus on actually finding and buying properties rather than spending too much time trying to figure out which state was the "best" for an LLC.
I think sometimes we overcomplicate these decisions, especially when we're just starting out. Forming an LLC in another state can also mean additional registrations, fees, tax filings, and administrative work depending on where you're actually doing business.
Sometimes simple is better. Make the best decision based on the information and resources you have today, start investing, and make adjustments as you go. As your portfolio grows, you can always revisit your structure if there's a legitimate business, legal, or tax reason to change it.
Join the conversationCreate a free account to reply, vote on answers and follow this thread.