Living in CA and investing in TX, how do you deal with taxes???

[Arlen Chou]

Hello BP,

So I am a very big proponent of "think global, invest local". All of my REI buy and hold properties are in CA. However, I have a small manufacturing facility in Plano Texas that has been running for nearly 13 years. When I first started visiting Texas, I could see that property values were on the up swing, but I could not get my mind around the fact that every piece of dirt looked exactly the same. So I decided to invest in my own backyard.

More recently my mind set is changing from separating real estate investing and my manufacturing business, to potentially linking them. Being in the manufacturing world has shown me that the availability of qualified labor is tied directly to local housing costs. My operators are being priced out of local areas and I am considering doing something about that, by providing housing. Without getting into the weeds of the plan, I am considering purchasing homes, under my REI firm, and renting them directly to my manufacturing company. In turn, the manufacturing company would let employees stay in the homes as long as they were employed with the company. I realize that this will drive up my overhead for my manufacturing company. However, I believe the strategy will "act" as a raise in income for my people, without raising associated costs of increasing wages for the company. My corporate margins will go down, but since I have no share holders this is actually a good thing in that it should also lower my year end taxes. On the REI side, I will be increasing my property holdings and have 100% control of cash flow.

What I am trying to figure out is an efficient tax structure so I will not get crushed by income tax in CA and property tax in TX.  If I can figure out the tax piece, I think the plan becomes a "win-win-win" for both my companies and my employees.  Please also comment if you see any other potential traps in this strategy.

TIA,

-Arlen