Should I wait to form my LLC until after my first purchase

Question

Hi all. I'm planning to launch my long term rental portfolio in 2025. I live near Seattle and I'm currently trying to choose between OH and TN for my target market as an out of state investor (which could still change). I'm planning to start an LLC but I'm wondering if I should wait until I have 100% chosen my market so I use the state of that market?  Or should I just get the LLC formed under WA state where I live? Also, should I find a CPA that specializes in real estate investment before forming an LLC and before purchasing my first property?  For context, I have $80k in liquidity and $1m in equity in my primary residence so working on opening a HELOC and plan to add multiple properties each year through the BRRRRR method. I wouldn't be surprised if I end up with properties in multiple states so not sure how much it matters where my LLC is located. Any and all advice is welcome!

Stuart Udis · Answer

@Travis Boyd Outside of instances where FHA or other extremely advantageous financing options exist I am a proponent of the LLC for investment real estate although the liability piece is overstated. If a claim is filed and the property is owned through an LLC the individual members are less likely to be named in the complaint and that above all else keeps the members name out of the docket. Again not always, but more times than not.  This in itself is an understated benefit because its a real pain having to explain to a lender, prospective employer etc. why your name is in the docket.

Secondarily, LLC ownership is very helpful for business planning. Nobody has a crystal ball or knows what the future holds. Perhaps you want to sell ownership interest. It's a lot easier to do so if the property is already owned through an LLC than having to retitle real estate.

Form an LLC where the property is located or where you live. No need for management LLC's, LLC's in WY, DE or any of the other states that are inaccurately deemed to be better for incorporation. In most cases no need to form an LLC until you are under contract with a property and know you are moving forward. Just add novation language allowing the change of buyer name and inform the title company and lender of the change ahead of time.

Title company will need formation docs, and operating agreement to prepare deed and title docs and lender will need formation docs and operating agreement for lien search and loan docs. Generally if you are up front about the intention and the members are disclosed along with the membership interests and members personal financials underwriting can proceed with the formation docs to follow. I would imagine the bigger loan origination companies out there who underwrite like robots because they are lining up the sale before closing  will be the exception and require those docs up front.

Russell Brazil · Answer

What is your purpose of having an LLC? Is it to borrow using a commercial lender that only lends to LLCs? Is it for liability protection?

If it is for liability protection, keep in mind to actually limit your liability means that any loans and insurance for the property need to properly be in the name of the LLC and not your personally. This is a mistake that novices make all the time. They think moving a property from their own name to an LLC, while the insurance and mortgage is in their personal name will limit their liability. The reality is that makes the LLC easily pierceable, thus giving you no protection.

Drago Stanimirovic · Answer

Travis, forming an LLC is smart for liability protection and creating a professional structure for your investments. If you're not set on a specific market, it's worth waiting until you choose, as forming the LLC in your target state can simplify compliance, property registration, and taxes.

An LLC also makes refinancing in the BRRRR method smoother, as many lenders prefer loans through an entity for multi-property investors.

Starting with the right structure positions you for long-term success. Let me know if you’d like help with financing or scaling strategies.

Best,Drago

Jake Baker · Answer

@Travis Boyd

Consult a CPA or attorney specializing in real estate investment before forming an LLC. They can guide you on tax advantages, asset protection, and multi-state strategies.A HELOC is a smart way to leverage your equity—ensure your financing structure aligns with your long-term goals.

Since you plan to add multiple properties annually, consider setting up bookkeeping and financial tracking systems early to streamline your operations.

Best of luck with your BRRRR journey—it sounds like you’re off to a strong start!

Travis Boyd · Answer

Super helpful, Stuart. Thank you!

Travis Boyd · Answer

It is for liability protection. My understanding is the key is to keep separate bank accounts and financial transactions.

Should I wait to form my LLC until after my first purchase

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