Lawyer local to me or local to the OOS property?

Question

Hi all,

I’m planning to purchase a small multifamily (10-20 units) in another state (as much as I love CA, I won’t be buying here!).

I known I’ll need a lawyer to help me through the transaction. Should I find a real-estate attorney local to me in CA or local to the property (in TX or GA or FL)?

Thanks so much!

Oleg Shalumov · Answer

@Jonathan Schwartz you need to go with OOS. That is where your LLC should be as well.

Ronald Rohde · Answer

Another option can be to find a real estate attorney licensed in multiple jurisdictions. I handle transactions in Florida and Texas for the same clients. Similar demographics, growth I suppose!

Jerel Ehlert · Answer

The law governing real property (including leases) follows the law of the state where the property sits, not where the owner resides.  Texas property law controls all property in Texas.  Makes sense to have a Texas attorney.

Your other option is to have a CA attorney who manages any issues that come up through an OOS counsel.  You interface with your local; your local interfaces with OOS firms (like GC/Sub relationship).  True, you're paying more, but you're getting a single point of contact.

Katie L. · Answer

@Jonathan Schwartz

What are you looking to do?  What kind of advice?  A lot of other states use attorneys to close escrow instead of how it is usually done here in CA.  If you're looking for estate planning or tax planning advice, probably local to you (especially since you're in CA).  If you're looking for property tax planning or landlord/tenant issues, probably local to the property.  If you're looking to form an entity, then it depends.

California is a sort of beastly state 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 be deemed to be "doing business" in California and therefore 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 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 will need to register it as a foreign LLC in the state in which you are doing business/holding property). This means that you will need to pay registration and filing fees in at least 2 states if you don’t buy CA property. Be sure to tell your accountant that you now need to file non-resident income tax returns in each state where you own property as well (although some of the states you mentioned don't have state taxes).

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. 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.

I know you probably thought you asked a simple question, but there's a lot of analysis that can go into that issue and everybody's situation is different.

*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.

John Lenhart · Answer

Get a local attorney. Some states even require attorney's at all real estate transactions. A California attorney does no good in those cases. Plus, CA attorney's are going to have much higher rates than most other areas of the country.

Katie L. · Answer

@Jonathan Schwartz

I'm not saying whether CA is better than another state or not - I don't know your situation or all the facts.  It can be a better idea to form in CA sometimes and sometimes it makes more sense to form elsewhere.  Talk it over with your attorney and/or CPA to get their input since they know your situation in detail.

Regarding your question about a local attorney, seems you may want to search out a local attorney who is familiar with the laws in the state in which you are purchasing property, especially if an attorney is required to close.  But, again, you can check with your existing attorney to see if they feel comfortable advising you on that or not.

These forums are great for idea generating and hearing thoughts of others, but are never a substitute for personalized advice from someone you trust.  Good luck!

*This post does not create an attorney-client or CPA-client relationship.  The information contained in this post is not to be relied upon.  Readers are advised to seek professional advice.

Jon Schwartz · Answer

@Katie Lepore, thank you! I have a CA corporation and my wife has a CA LLC (neither related to real estate), so we’re familiar with the headaches. We have a local attorney for those, as well as our estate planning.

From what you’re saying, it sounds best to form a CA LLC.

For transacting a property, should a go local to me or local to the property for a lawyer? For example, I’m about to submit an LOI on a property in Lubbock, TX. I’ll need a PSA if my offer is accepted. Should I find a Lubbock (or elsewhere in TX) attorney to work with on that instead of a CA attorney?

Thanks so much!

Jon Schwartz · Answer

@Oleg Shalumov Thanks for the response! Question: why should the LLC be local to the property?

Lawyer local to me or local to the OOS property?

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