Creating an LLC: state where properties are located

[Tanya Maslach]

Hi all

Some context:

We have 1 LTR in Denver now, and reside there. We do NOT have a separate LLC for it. Taxes/Expense: flow through our personal taxes.

Questions:
a. We are about to buy properties in OH. Should we set up a simple LLC in Ohio? Or does it matter (can we create one in Colorado)?

b. What are cost and time effort for setting up an LLC for REI purposes? Curious to learn options for ease of set up and $ hard costs (Think about it like Tier 1, Tier 2, Tier 3, with Tier 1 being "just fine, it works" and Tier 3 being "Pro-Level with Pro Prices")

Thank you!  HAPPY THANKSGIVING!
Tanya

[Chris Seveney]

Quote from @Tanya Maslach:

Hi all

Some context:

We have 1 LTR in Denver now, and reside there. We do NOT have a separate LLC for it. Taxes/Expense: flow through our personal taxes.

Questions:
a. We are about to buy properties in OH. Should we set up a simple LLC in Ohio? Or does it matter (can we create one in Colorado)?

b. What are cost and time effort for setting up an LLC for REI purposes? Curious to learn options for ease of set up and $ hard costs (Think about it like Tier 1, Tier 2, Tier 3, with Tier 1 being "just fine, it works" and Tier 3 being "Pro-Level with Pro Prices")

Thank you!  HAPPY THANKSGIVING!
Tanya

 Where in Ohio? Typically I would just run it through my name but there are areas of ohio that target out of state owners if its a single family and will send you fines and violations  for every little thing. 

you also should talk to your attorney and accountant on how it impacts taxes

[Nick Belsky]

@Tanya Maslach

You do not necessarily need to have an Ohio based entity to purchase and operate rentals in Ohio, HOWEVER, many lenders are beginning to require that either an entity based in the same state or a foreign entity is registered in that state in order to obtain a loan approval.  I've had a few Ohio title companies point this out with files as well requiring the entity vested on title to either be registered as a foreign entity or a domestic entity with the Ohio Secretary of State.  

Meaning, you could simply use your CO entity and register it in Ohio as a foreign entity.  Ohio will require you to have an Ohio based Registered Agent to file.  This is easily enough obtained through online services if you don't know someone in Ohio willing to do this for you.  Or you can create a new entity in Ohio to vest your Ohio properties under.  Same issue with a Registered Agent.

Either method are fairly inexpensive and very easy to do yourself. I don't ever recommend paying LegalZoom or other services to setup a simple LLC. If you have partnerships and complex entity structures, that is an entirely different story. But for a sole member or husband and wife owned entity, too easy to do to waste money paying someone else to do it. I setup my entities and it takes between 15-30 minutes to do the online applications.

Ohio Domestic Business Entities Fee Schedule

https://www.ohiosos.gov/businesses/filing-forms--fee-schedul...

Ohio Foreign Business Entity Fee Schedule

https://www.ohiosos.gov/businesses/filing-forms--fee-schedul...

Looks like it is an initial $99 fee either way.  There is no annual filing fee in Ohio.

What I can't answer is how your taxes are impacted.  You'd need to consult with a CPA for that one.

Cheers!

[Tanya Maslach]

Quote from @Nick Belsky:

@Tanya Maslach

You do not necessarily need to have an Ohio based entity to purchase and operate rentals in Ohio, HOWEVER, many lenders are beginning to require that either an entity based in the same state or a foreign entity is registered in that state in order to obtain a loan approval.  I've had a few Ohio title companies point this out with files as well requiring the entity vested on title to either be registered as a foreign entity or a domestic entity with the Ohio Secretary of State.  

Meaning, you could simply use your CO entity and register it in Ohio as a foreign entity.  Ohio will require you to have an Ohio based Registered Agent to file.  This is easily enough obtained through online services if you don't know someone in Ohio willing to do this for you.  Or you can create a new entity in Ohio to vest your Ohio properties under.  Same issue with a Registered Agent.

Either method are fairly inexpensive and very easy to do yourself. I don't ever recommend paying LegalZoom or other services to setup a simple LLC. If you have partnerships and complex entity structures, that is an entirely different story. But for a sole member or husband and wife owned entity, too easy to do to waste money paying someone else to do it. I setup my entities and it takes between 15-30 minutes to do the online applications.

Ohio Domestic Business Entities Fee Schedule

https://www.ohiosos.gov/businesses/filing-forms--fee-schedul...

Ohio Foreign Business Entity Fee Schedule

https://www.ohiosos.gov/businesses/filing-forms--fee-schedul...

Looks like it is an initial $99 fee either way.  There is no annual filing fee in Ohio.

What I can't answer is how your taxes are impacted.  You'd need to consult with a CPA for that one.

Cheers!

Amazingly helpful. Above and beyond. 
simply wonderful.  Thank you!

[Tanya Maslach]

Quote from @Chris Seveney:

Quote from @Tanya Maslach:

Hi all

Some context:

We have 1 LTR in Denver now, and reside there. We do NOT have a separate LLC for it. Taxes/Expense: flow through our personal taxes.

Questions:
a. We are about to buy properties in OH. Should we set up a simple LLC in Ohio? Or does it matter (can we create one in Colorado)?

b. What are cost and time effort for setting up an LLC for REI purposes? Curious to learn options for ease of set up and $ hard costs (Think about it like Tier 1, Tier 2, Tier 3, with Tier 1 being "just fine, it works" and Tier 3 being "Pro-Level with Pro Prices")

Thank you!  HAPPY THANKSGIVING!
Tanya

 Where in Ohio? Typically I would just run it through my name but there are areas of ohio that target out of state owners if its a single family and will send you fines and violations  for every little thing. 

you also should talk to your attorney and accountant on how it impacts taxes

Columbus. 43206 zip.

[Jason Malabute]

Quote from @Tanya Maslach:

Hi all

Some context:

We have 1 LTR in Denver now, and reside there. We do NOT have a separate LLC for it. Taxes/Expense: flow through our personal taxes.

Questions:
a. We are about to buy properties in OH. Should we set up a simple LLC in Ohio? Or does it matter (can we create one in Colorado)?

b. What are cost and time effort for setting up an LLC for REI purposes? Curious to learn options for ease of set up and $ hard costs (Think about it like Tier 1, Tier 2, Tier 3, with Tier 1 being "just fine, it works" and Tier 3 being "Pro-Level with Pro Prices")

Thank you!  HAPPY THANKSGIVING!
Tanya

Hi Tanya,

Great questions! Here’s some insight based on my experience:

Question A:

Since you live in California, it's important to know that California doesn't care where your property is located. As a resident, you'll still need to pay the $800 minimum annual franchise tax to the California Franchise Tax Board (FTB) for any LLC you own, even if it's set up in another state.

What I personally do is have a holding company (LLC) in California that owns my LLCs in other states where I invest. This setup ensures that I stay in compliance with California's FTB requirements. One of the biggest misunderstandings I see among real estate investors is thinking that setting up an LLC in another state allows them to avoid California's franchise tax. Unfortunately, that's not the case. If you live in California, the FTB still wants its $800 per LLC, no matter where your properties are.

Question B:

When it comes to setting up an LLC, here are three common approaches:

1. DIY Approach:

In most states, you can set up an LLC yourself for less than $100 in filing fees, depending on the state. However, you'll need to handle all the paperwork, figure out which forms to file, and stay on top of compliance requirements like annual reports. While this is the cheapest upfront option, mistakes can be costly. For example, failing to file a Business of Information (BOI) report correctly can result in penalties of $500 per day or even up to one year in jail if the filing is late.

2. LegalZoom or Similar Services:

LegalZoom can help create an LLC for about $600. They'll handle setting up your legal entity and obtaining your EIN (Employer Identification Number). However, they charge extra for things like the Statement of Information (SOI), which costs $75, and the BOI report, which costs $90. While this is a convenient option, the downside is that they don't offer any advice—legal, tax, or business-related. Their role is purely administrative, so if you file incorrectly or choose the wrong entity type, you're on your own.

3. Hiring a Lawyer or CPA (White-Glove Service):

This is the most comprehensive option, with costs ranging from $1,000 to $3,000. A lawyer or CPA will handle all the filings for you, including obtaining your EIN, filing the SOI and BOI, and ensuring compliance with the California FTB. They also provide guidance on entity selection, tax strategies, and long-term planning, which can save you money and trouble in the long run. While this is the most expensive option, it minimizes the risk of costly mistakes and ensures you’re getting tailored advice.

If you’re confident in handling the process, the DIY approach can save you money. But if you’re unsure about compliance or plan to scale your real estate portfolio, I’d recommend consulting a CPA or attorney to avoid costly mistakes.

[Greg Scott]

My attorney says he prefers it when there is a business reason for the state of the LLC, and he said either your home state or where the property is located is suitable.

A much bigger topic is whether or not having an LLC is a good strategy given your personal situation. (It's up to you to figure it out.) Fannie Mae does not allow mortgages to be in the name of an LLC. I've heard attorneys argue that if you put the mortgage in your name and later move the property to the LLC, you may have invalidated the LLC. Many find a better route is building a fortress of insurance coverage. Unless you are getting a bank loan and are willing to accept higher interest rates and balloon payoffs, buying within an LLC is not a clear-cut decision.

An LLC can be created very quickly and should costs under $1K, but you need to know there will be costs and time to maintain that LLC every year.

[Tanya Maslach]

Quote from @Greg Scott:

My attorney says he prefers it when there is a business reason for the state of the LLC, and he said either your home state or where the property is located is suitable.

A much bigger topic is whether or not having an LLC is a good strategy given your personal situation. (It's up to you to figure it out.) Fannie Mae does not allow mortgages to be in the name of an LLC. I've heard attorneys argue that if you put the mortgage in your name and later move the property to the LLC, you may have invalidated the LLC. Many find a better route is building a fortress of insurance coverage. Unless you are getting a bank loan and are willing to accept higher interest rates and balloon payoffs, buying within an LLC is not a clear-cut decision.

An LLC can be created very quickly and should costs under $1K, but you need to know there will be costs and time to maintain that LLC every year.

 Thank you @Greg Scott!

We have one rental property now in our home state (Colorado).... and our purchase in Ohio will be with a conventional loan.

So it's sounding like we will do this purchase without an LLC formation... it doesn't make sense right now.

As we build a portfolio, it may make more sense to do so, but it's sounding like -- from advice here -- it may not be necessary (or be of much use tax-wise).

Thank you!

[Tanya Maslach]

Quote from @Jason Malabute:

Quote from @Tanya Maslach:

Hi all

Some context:

We have 1 LTR in Denver now, and reside there. We do NOT have a separate LLC for it. Taxes/Expense: flow through our personal taxes.

Questions:
a. We are about to buy properties in OH. Should we set up a simple LLC in Ohio? Or does it matter (can we create one in Colorado)?

b. What are cost and time effort for setting up an LLC for REI purposes? Curious to learn options for ease of set up and $ hard costs (Think about it like Tier 1, Tier 2, Tier 3, with Tier 1 being "just fine, it works" and Tier 3 being "Pro-Level with Pro Prices")

Thank you!  HAPPY THANKSGIVING!
Tanya

Hi Tanya,

Great questions! Here’s some insight based on my experience:

Question A:

Since you live in California, it's important to know that California doesn't care where your property is located. As a resident, you'll still need to pay the $800 minimum annual franchise tax to the California Franchise Tax Board (FTB) for any LLC you own, even if it's set up in another state.

What I personally do is have a holding company (LLC) in California that owns my LLCs in other states where I invest. This setup ensures that I stay in compliance with California's FTB requirements. One of the biggest misunderstandings I see among real estate investors is thinking that setting up an LLC in another state allows them to avoid California's franchise tax. Unfortunately, that's not the case. If you live in California, the FTB still wants its $800 per LLC, no matter where your properties are.

Question B:

When it comes to setting up an LLC, here are three common approaches:

1. DIY Approach:

In most states, you can set up an LLC yourself for less than $100 in filing fees, depending on the state. However, you'll need to handle all the paperwork, figure out which forms to file, and stay on top of compliance requirements like annual reports. While this is the cheapest upfront option, mistakes can be costly. For example, failing to file a Business of Information (BOI) report correctly can result in penalties of $500 per day or even up to one year in jail if the filing is late.

2. LegalZoom or Similar Services:

LegalZoom can help create an LLC for about $600. They'll handle setting up your legal entity and obtaining your EIN (Employer Identification Number). However, they charge extra for things like the Statement of Information (SOI), which costs $75, and the BOI report, which costs $90. While this is a convenient option, the downside is that they don't offer any advice—legal, tax, or business-related. Their role is purely administrative, so if you file incorrectly or choose the wrong entity type, you're on your own.

3. Hiring a Lawyer or CPA (White-Glove Service):

This is the most comprehensive option, with costs ranging from $1,000 to $3,000. A lawyer or CPA will handle all the filings for you, including obtaining your EIN, filing the SOI and BOI, and ensuring compliance with the California FTB. They also provide guidance on entity selection, tax strategies, and long-term planning, which can save you money and trouble in the long run. While this is the most expensive option, it minimizes the risk of costly mistakes and ensures you’re getting tailored advice.

If you’re confident in handling the process, the DIY approach can save you money. But if you’re unsure about compliance or plan to scale your real estate portfolio, I’d recommend consulting a CPA or attorney to avoid costly mistakes.

 Hey @Jason Malabute -- thank you for this.
We do not live in California.  We live in Colorado.

[Gregory Wilson]

I think they all missed the most important point. Everything else is the same. But, in Ohio creditors of members (you run a semi into the median with $5mm of electronics inside and you have $100,000 of property damage coverage) in Colorado they take your membership interest. In Ohio they don't. In Ohio a claim on future distributions of the LLC (a charging order) is the exclusive remedy. Also, Ohio does not allow "piercing the corporate veil" unless you commit fraud or a crime.

[Ashish Acharya]

@Tanya Maslach For properties in Ohio, it's simpler to form an LLC in Ohio rather than Colorado, as it avoids registering as a foreign LLC and reduces costs and administrative work. Setup costs vary: Tier 1 (online services like LegalZoom) costs $50–$300 plus state fees (~$99 in Ohio), Tier 2 (with an attorney) costs $500–$1,500 for tailored structuring, and Tier 3 (with a specialized attorney and CPA) starts at $2,500 for complex setups.

LLC will not save any taxes and would still be reported in your personal taxes if LLC is SMLLC.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

[Patrick Drury]

@Tanya Maslach
There is a bunch of forums already discussing whether to us an LLC or not to buy a property. As someone who lives in Columbus and invests here locally, I would just buy it in your name. The cons outweigh the pros of getting an LLC for 1 single family. You'll just be paying for a higher interest rate which will hurt your numbers and cash flow and you'll be paying more to maintain the LLC.


In terms of Costs associated with an LLC
-Roughly like $100 to file with the secretary of state in Ohio if you wanted to do it yourself
-Cost for your accountant to prep a tax return at the end of the year for that LLC (depends on your accountant)
-Cost of a higher interest rate with a DSCR loan
-Maybe more advanced, but if you have more rentals the cost of additional bookkeeping software like having to pay for additional quick books accounts. In my case, thats is like $99 a month for quick books plus. 

[Remington Lyman]

Quote from @Tanya Maslach:

Hi all

Some context:

We have 1 LTR in Denver now, and reside there. We do NOT have a separate LLC for it. Taxes/Expense: flow through our personal taxes.

Questions:
a. We are about to buy properties in OH. Should we set up a simple LLC in Ohio? Or does it matter (can we create one in Colorado)?

b. What are cost and time effort for setting up an LLC for REI purposes? Curious to learn options for ease of set up and $ hard costs (Think about it like Tier 1, Tier 2, Tier 3, with Tier 1 being "just fine, it works" and Tier 3 being "Pro-Level with Pro Prices")

Thank you!  HAPPY THANKSGIVING!
Tanya

**Tier 1** - Do it yourself (DIY) using the resources available on the website.

**Tier 2** - Hire an attorney to handle it for you.

**Tier 3** - Have an in-depth discussion with your lawyer, CPA, and lender about your goals, and then have an attorney set it up according to your needs.

I do not recommend attempting to do it yourself unless you have experience. Once you gain that experience, it may become more efficient to delegate the task rather than managing it on your own.