Forming an Entity for first time buy, California resident

[Erica Chung]

Hi everyone. I’m very new to real estate investing. I’ve just been feeding on reading content. I’m currently reading Long Distance Real Estate Investing by David Greene. And would like to apply his advice to starting my first purchase.

But I’m just stuck in the legal aspect. For an investor purchasing their first property outside California...

1. Would it make sense to start with single or multi unit home?

2. Invest personally or form an entity?

3. I am not married, no kids, paying taxes in California. Could I form an entity in another state without having an office and team?

- Airyca

[Eric Black]

Hi Erica,

Welcome to the forums. From one Californian to another, living in CA is the worst thing you have going for you as a REI. :) Here are my responses, which are just my opinion, on your questions:

1.) Single and multi-family can both make good investments. It depends on the deal and your personal investment philosophy. You're sure to get people defending both sides but it's really up to you.

2.) Once again, this will depend on the deal and your personal situation. As our attorney told us, an entity is just asset protection, an insurance policy that kicks in after your primary insurance policy. If you don't have a lot of assets then there is not a lot to protect.  We had a number of properties before we formed our entity. Again, you will get many varying opinions on this.

3.) Yes, you can form an entity out of state without an office and team, but it won't get you away from paying the great state of CA. You will still have to pay taxes in CA. And if you're forming an LLC you'll still have to pay the $800 annual fee to CA for having an LLC in another state. There are firms who will help you get everything set up correctly. I wouldn't recommend using something like LegalZoom if you do decide to set up an entity but I'm sure others will disagree. There are just lots of layers to having a foreign (out of state) entity when living in CA. I can recommend the firm we used if you want to PM me.

Hope this helps and feel free to ask more questions if you have them.

Cheers!

Eric Black