All Forum Posts by: Sri Voodi

Bring all your concerns to an attorney and have them create the LLC and draft the operating agreement.

I think most small investors should create the LLC in the state where the property will be located in, in this case, North Carolina.

If items such as business friendly case law, anonymity, charging order protection, etc are important to you, you may want to consider popular states such as Wyoming, Nevada or Delaware for LLC formation.

Best of luck. 

@Sri Voodi

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 will likely 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, you will likely 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 will probably need to pay registration and filing fees in at least 2 states if you don't buy CA property as a CA resident.

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.

Most likely 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 likely that the court where the accident happened would have 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/three of you had a disagreement. 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.

Typically, it is recommended that you have an attorney draft your LLC operating agreement in the instance where it will be a multi-member LLC with partners. You would want to include those custom terms that you've outlined about buying another member out/right of first refusal or bringing in a new member, etc.

*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.

I'm in Kenai, minutes from fishing and am converting my home into a STR. If you plan to be there in the summer, you'll be losing out on a lot of money. I'd imagine you'd be better off with a seasonal renter then a STR in the winter

Thanks Brendon. You have a valid point and we have been discussing the same, whether to be STR landlord or a seasonal renter?

But our stay shouldn't be more than a summer month in the whole year. And we are not looking to make a lot of money off it, just enough to cover the PITI/Property management fees/flight tickets. Any positive cash flow over that is a bonus. Our budget is around 400k for the property. And PITI (25% down) will be around $2K per month and one time flight tickets at $2k per year. So if the property is rented out for 90 nights a year@$300/night, PITI/flight tickets should be covered. Management fees is something I didn't quite do the math yet. I think we should be ok financially - what do you think? Am I missing something? 

Thanks

Sri