Stuck Between Choosing An LLC Structure

Birmingham, Alabama
Legal & Legislation
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Stuck Between Choosing An LLC Structure

Matthew HeckmanPro Member
Investor · Member since 2024 · 33 posts · 20 votes

Hi all,

I'm an OOS investor looking in Birmingham. I'm currently debating between a few different legal structures and would love some advice from attorneys, CPAs, or other investors. Ideally I would like to have a Wyoming LLC with individual Alabama LLCs under it containing properties up to 500k in value in each, and then umbrella insurance on top of that.

The problem I'm running into is I reside in California which charges a minimum $800 a year franchise tax for every LLC you own even though they aren't in CA making this route more expensive than I would like.

Some options I'm debating between are:

  1. Ditching the Wyoming LLC and doing 1 LLC in Alabama + umbrella insurance and opening a second when my portfolio hits 500k in the first one.

  2. Owning under my name with just an umbrella policy (cheapest option but less protection and doesn't allow me to finance with DSCR)

  3. Opening a series LLC which Alabama allows for + umbrella insurance (to my knowledge CA treats each series separate when it comes to the franchise tax so each would be subject to the $800 fees)

I'm open to any advice on these legal structures, or a new approach all together. Happy to learn from everyone here. Thanks in advance!

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  • Ashley RigsbeePro Member
    Customer Success & Onboarding Specialist at BiggerPockets · Charlotte, NC · Member since 2023 · 152 posts · 53 votes
    2w

    I've always been interested in learning more about LLC structures for real estate investing. Looking forward to reading everyone's advice and insights on this topic!

    BiggerPockets
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  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · Sarasota, FL · Member since 2017 · 5k+ posts · 3k+ votes
    1w

    Matthew, this is exactly the type of structure I'd have the CPA and attorney model before setting anything up.

    The biggest thing I'd clarify is that the California $800 issue isn't necessarily solved simply by forming the LLC in Wyoming or Alabama. California's rules can apply to out-of-state LLCs that are doing business in California, and where you're actually managing the entities from can matter.

    I'd also be careful with the Series LLC option. California has specific filing and tax rules for foreign Series LLCs, so I wouldn't assume it automatically eliminates the $800 annual tax for each series.

    I'd compare the three structures based on annual state costs, foreign registration requirements, liability protection, financing, bookkeeping, tax treatment, and how many properties you realistically expect to own.

    Sometimes the cheapest structure on paper becomes the most expensive once you add California compliance and administration.

    This is definitely something I'd model before you acquire the next property rather than after the entities are already established.

    Feel free to DM me, I’d be happy to send over a few resources that might be helpful.

    [email protected]941-914-7779
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