Any recommendation on forming out of state LLC or Home State LLC

Tax, SDIRAs & Cost Segregation
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Any recommendation on forming out of state LLC or Home State LLC

Rajagopalarao Paidi
Member since 2023 · 32 posts · 21 votes

When I have a property out of state, is it recommended to form LLC in the state where I have a property ? or we can manage through the home state LLC, any prod and cons Please ?

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Benjamin WeinhartBusiness Member
Accountant · Cincinnati OH 45245, USA · Member since 2022 · 112 posts · 112 votes
2y

My personal thought on an LLC is that if you actually need the extra protection that's given by registering in a super business friendly state, you usually have someone in your ear already telling you as you grow to a large enough size for it to matter. I've worked with many restaurants/manufacturing companies with 9+ figures of revenue and they're just registered where their HQ is most of the time. This includes the biggest I've worked on who had ~$1b in revenue. For the ease of administration, I almost always advocate for someone to have an LLC registered in their home state (except for CA residents, unless you don't mind an extra $800/yr fee). No need to over complicate things while still relatively small, you can always revisit it later.

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  • Greg ScottPro Member
    Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
    2y

    The attorney that does most of my real estate work likes to see the LLC formed in either the state where the property is or where the LLC owner lives. He has advised me against forming an LLC in a third state. I'm not an attorney so can't explain why he didn't like that.

    Since I live and own in business-friendly states, I don't worry too much about which one I choose.

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  • Rajagopalarao Paidi
    OP
    Member since 2023 · 32 posts · 21 votes
    2y

    Thank you 

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  • Account Closed
    Accountant · San Diego, CA · Member since 2019 · 1k+ posts · 552 votes
    2y

    Hey Raj, 

    When you have a property out of state, deciding whether to form an LLC in the state where the property is located or manage it through your home state LLC involves weighing several factors. Let's break down the pros and cons of each approach:

    Forming an LLC in the State Where the Property is Located:

    Pros:

    1. Compliance with Local Laws: Establishing an LLC in the state where the property is situated ensures compliance with local regulations and laws specific to that jurisdiction.
    2. Legal Clarity: It provides clear legal jurisdiction and may simplify any legal proceedings related to the property in that state.
    3. Perception: Operating with a local LLC may give tenants and local authorities confidence in your commitment to the community.

    Cons:

    1. Additional Costs: Setting up and maintaining an LLC in another state means incurring additional registration fees, taxes, and possibly hiring local legal counsel.
    2. Administrative Burden: Managing multiple LLCs across different states adds complexity to your administrative workload, including extra paperwork and compliance requirements.
    3. Tax Implications: You may face tax obligations in both the state where the property is located and your home state, potentially leading to double taxation or complexities in tax filings.

    Managing Through Home State LLC:

    Pros:

    1. Simplified Management: Handling all properties under a single LLC streamlines administrative tasks, reducing paperwork and simplifying tax filings.
    2. Cost Savings: Avoiding the need to establish multiple LLCs in different states saves on registration fees, legal expenses, and ongoing maintenance costs.
    3. Consistency: Uniformity in management practices and legal structures may contribute to efficiency and ease of operation across your real estate portfolio.

    Cons:

    1. Legal Exposure: Operating out-of-state properties under a home state LLC may expose your personal assets to the laws and liabilities of the other state, potentially diminishing the liability protection the LLC offers.
    2. Compliance Challenges: You'll need to ensure your home state LLC meets the legal requirements for conducting business in other states, which could involve additional filings and fees.
    3. Perception and Credibility: Some tenants or local stakeholders may prefer dealing with a landlord who has a local presence, which could impact your reputation or relationships in the community.

    Ultimately, the decision depends on your specific circumstances, risk tolerance, and long-term goals. Consulting with an accountant who is focused on real estate can help you make the right choice here 

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  • Dan Thomas
    Rental Property Investor · Bow, NH · Member since 2016 · 216 posts · 185 votes
    2y

    @Rajagopalarao Paidi

    What is the purpose of the LLC? I've only gotten them when the banks want me to. If that is the case, ask your lender what they prefer.

    If it is for asset protection.....doesn't matter do which ever, and have a GREAT insurance policy with an umbrella.

    1Reply
  • Benjamin WeinhartBusiness Member
    Accountant · Cincinnati OH 45245, USA · Member since 2022 · 112 posts · 112 votes
    2y

    My personal thought on an LLC is that if you actually need the extra protection that's given by registering in a super business friendly state, you usually have someone in your ear already telling you as you grow to a large enough size for it to matter. I've worked with many restaurants/manufacturing companies with 9+ figures of revenue and they're just registered where their HQ is most of the time. This includes the biggest I've worked on who had ~$1b in revenue. For the ease of administration, I almost always advocate for someone to have an LLC registered in their home state (except for CA residents, unless you don't mind an extra $800/yr fee). No need to over complicate things while still relatively small, you can always revisit it later.

    [email protected]
    Ice Accounting & CPA, LLC55 Reviews
    View Page
    2Reply
  • Rajagopalarao Paidi
    OP
    Member since 2023 · 32 posts · 21 votes
    2y

    Thank you , Great explanation, gives me confidence.` 

    0Reply
  • Jason WatsonBusiness Member
    CPA · Colorado Springs, CO · Member since 2024 · 98 posts · 83 votes
    2y

    Usually you put the LLC in the state where the activity is located. California and many other states will "impute" your activity to your resident state regardless. In other words, you have a rental in Colorado and have an LLC also registered in Colorado. But you are a California resident... you will have to file Form 568 in California and pay their LLC fee.

    Oh, and LLCs are lousy asset protection mechanisms. If you are a lousy landlord, an LLC is not going to protect from injuries and subsequent litigation.

    [email protected]719-387-9800
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  • Bob S.
    Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes
    2y
    Quote from @Rajagopalarao Paidi:

    When I have a property out of state, is it recommended to form LLC in the state where I have a property ? or we can manage through the home state LLC, any prod and cons Please ?


     No of course not, talk with your accountant. So where did you purchase and how is going. 

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