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Updated about 2 years ago, 10/14/2022
LLC formation advice
My fiance and I have purchased three properties, all in different states (CA, FL, TN). We opened up an LLC and EIN in the state of Florida, but we don't completely understand the next steps. I've heard it's a fairly quick and easy process to roll title of a property into the LLC, but I've also heard it may cost us each year at tax return time? Also, should we only roll our Florida property into the Florida LLC and open another one for the Tennessee property, or can we combine those into the existing Florida LLC?
For more context; we currently live in CA. We have a short-term rental in Tennessee and another near Tampa, FL. All three properties have some equity, approximately $500-600k combined, so not a huge amount. If it matters, I work a lot of hours at my W-2 (firefighter) and my fiance is a nurse, so I don't believe we can quality as real estate professionals. We are trying to get this figured out and pay off our Heloc so we can buy our next investment! Any advice is much appreciated. Thank you!
(disclaimer, I'm not an attorney!) My recommendations...
- Talk to an attorney who specializes in real-estate/asset protection. You can find some good ones here, and there are some good resources on youtube (check our Clint Coons; he has some great, short videos discussing this)
-Much like the McDLT (for us older folk... keep the hot-side hot and the cold-side cold), keep your CA properties away from FL and TN. We have property in both FL and TN, and got out of our CA property.
- If you're structuring for anonymity, use WY as a base LLC. We freaked out seeing our home address on websites, which prompted us to use a WY LCC and moved our properties into land trusts, further isolating us from public listings.
Congrats on the three properties!
I have a question, Tom Morrisey...I have an fl LLC....how can I switch over to a WY LLC or do I just add it ..I also own properties out of state...thanks
Agree with the posts above - best to connect with an attorney. I would note, that many are not aware that CA has an annual franchise fee. Thus, even if your LLC is foreign (i.e. out of state), as a CA resident you will still be required to pay the CA annual franchise tax for such LLC ($800 usually).
Quote from @German Vellon:
I have a question, Tom Morrisey...I have an fl LLC....how can I switch over to a WY LLC or do I just add it ..I also own properties out of state...thanks
It really depends on what you want to do via the LLC. I would recommend talking to an attorney who specializes in business structures for smaller real-estate investors. The FL LLC may be all you need, depending on what you want.
As I've gleamed from some good online mentors, there are a few reasons to use an LLC: (1) more-easily pass-on generational wealth, (2) anonymity, and (3) asset protection. Depending on what you want to accomplish with the FL LLC, you may be ok as-is, or need to modify your structure (and use a WY LLC as a master LLC, as an example).
We did talk to a few different companies that specialize in this, and I spent a year learning a LOT about it all. I do recommend an attorney :) (even a few hundred dollars for an hour consultation is worth it; you'll learn a lot)
Quote from @Vessi Kapoulian:
Agree with the posts above - best to connect with an attorney. I would note, that many are not aware that CA has an annual franchise fee. Thus, even if your LLC is foreign (i.e. out of state), as a CA resident you will still be required to pay the CA annual franchise tax for such LLC ($800 usually).
I don't recall the structure, but I do remember some discussion on how to avoid the $800 fee, depending on how you setup the business structure. I didn't pay enough attention to it, since we have no plans to go back to California :)
If your goal is asset protection and a degree of anonymity without tax implications or violating the due on sale clause on your mortgage, I would recommend the hub and spoke model with a land trust.
There are a few states you can do this in. WY is one of them. There are significant benefits to forming an LLC in Wyoming such as unparalleled limited liability protection, fewer corporate formalities, no state income taxes, and privacy. Member and/or Manager names are never required on public record for an LLC in Wyoming. That's the hub.
Then you would have a spoke for each of the properties you own, (CA, FL, TN). The spoke is an LLC in each state. The LLC owns the land trust of the property. Your asset protection attorney would deed your property into a land trust. Simple process.
All your correspondence to that address including tax stmts would go to the registered address which would be your attorney and they would scan those items and email it to you. They usually charge about $500 per year to keep the land trust going.
That is the best approach I have found in my years of experience. Like the other posters have noted, it is always best to interview a few asset protection firms and see what works best for you.
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Quote from @Donnie Rath:
Welcome to the BiggerPockets forum!
I recommend speaking with an attorney that can help you structure this. Mixing your California asset with your other assets is the only problem. If someone in California sues (most likely option) it exposes your property in the other states. As Kristina points out, you can create a Land Trust in Wyoming that may better protect you and the property.
- Nathan Gesner
Actually it might not be a bad idea to find the STR advocacy group most local to the area or state(s) where you intent to operate. If it's difficult to find, the national VRMA may be a great place to start for an introduction to legal professionals.
Just as with any legal needs, it's best to find attorneys who specialize in exactly what you need. There are lawyers who specialize in STR and often even have a hand in writing local/state regs, the advocacy groups will often be connected to the right pros.
In FL go to FAVR - Florida Alliance for Vacation Rentals. I sat on the board for a few years, they're a good group that's also plugged directly into the legislative process so you can keep track of the developments in Tallahassee.
Hi Donnie,
It is actually possible for you to have all of your properties under the same structure and avoid the California franchise tax legally. The way that many people do this is the use of a Delaware Statutory Trust. This entity has many of the same benefits of a Series LLC, but it avoids the California franchise tax based on the fact that it is not an LLC. The Delaware Statutory Trust is usually paired with a Land Trust in this structure. The Land Trust is the title owner of the property, and the Land Trust is owned by an individual Series of the Delaware Statutory Trust in order to isolate each asset in its own entity.