How to create a LLC from out of state

Question

Hello,

i'm purchasing a rental out several states away and I'm want to buy the property in a LLC's name. Is there a way to do this online or do I need to go through a lawyer? How much should I expect to pay to do this? I'm in California and the property is in Minnesota.

Thanks!

Joe Moore · Answer

You can go to any state's secretary of state website and go to the corporation section and form any type of corp by following their instructions.  Easy as pie.  CA has an yearly renewal fee of $800 for the entity.  I do not know if MN dharges a yearly fee for its corporations.

Pavel Sakurets · Answer

You can register an LLC in MN for $165 at state.sos.mn

Buy a property in MN under that LLC.

You will need to have LLC registered in CA if you decide that the owner of LLC in MN will be your CA's LLC.

BTW, I would not recommend buying a rental property further than 1 hour from where you live and I had over 50 rentals. This is #1 mistake that new investors make

Kyle Soderman · Answer

You can always have a "property precautions" form in your lease. Of course, this will not stop someone from suing you but will help with your case.

The management company I work for has this form with every lease signing. Essentially it says we are not liable if you get hurt on our property.

EDIT: This is in response to if someone slips on ice and breaks their arm.

David K. · Answer

This does become a pain! My LLC's are in Minnesota. I was buying a property in IL, using a bank in IA, across the river. To do this I had to register both in IL ($500) and IA ($175). Decided to just buy it under my own name!

Julian L. · Answer

Hm.. this is all very confusing. Does anyone have a real estate lawyer recommendation in this Los Angeles area I could connect with this to figure this out?

This is my first rental. Perhaps a LLC isn't necessary. What type of Umbrella insurance should I look for? Essentially, I just want the peace of mind to know if someone slips on the ice in MN and breaks their arm, I won't risk losing my assets.

Thanks for the advice, all.

Julian

Jay Hinrichs · Answer

@Linda Weygant  oregon is the same way.   which makes investing in states with no income tax even more vexing.

@Julian L. I just have my PDX attorney do it for me.. you can DIY i just don't have time and he has a secretary do it.  preparing the LLC doc  if its a single member you can buy those off the shelf... If your LLC is just holding a few rentals.. I am not in the camp of being overly concerned about liability.. just have proper insurance.

Linda Weygant · Answer

California has some unique laws with regard to taxation and entities.  Essentially, if you live in California, all of your income is taxable there, even if it is earned in another state.  You do get a credit for taxes paid in other states.

You've got a couple of choices.

1.  Look into whether a large umbrella policy will cover your needs rather than an LLC.

2.  Register the LLC in Minnesota which, if I'm reading their site correctly, does not charge a fee for this.  You will need a registered agent in Minnesota.  This is somebody on whom a lawsuit can be served in the event it is needed.  If you know somebody in Minnesota, ask if they'll perform this for you.  If not, there are entities that will do this.  You will then register your foreign LLC in California which, if I'm reading that site correctly, charges $70.  However, if this is a single member LLC, I'm not sure you actually need to do this because the LLC won't be filing its own tax return nor will it be doing business in California.  A discussion with an attorney is definitely in order.

3.  Register the LLC in California, which is an $800 fee.  You will then register a foreign LLC in MInnesota.

There is no need to create 2 LLCs.  It would just be one LLC registered as a foreign LLC in the opposite state.

The way your taxes will work is like this.  Let's say you have $1000 of profit and the state tax in California is 9% and the state tax in Minnesota is 5%.

You'll file a tax return in Minnesota as a non-resident and pay $50 in tax.  In California, you add the $1000 to your other California based income and calculate $90 in tax.  However, you get a credit for the $50 you paid to Minnesota, so you only pay $40 to California.

Many states don't have this issue - you pay tax only in the state where you earn the money.

Julian L. · Answer

I didn't realize I had to register my LLC in CA. Why would I need to do that when the income will be generated in Minnesota? To clarify, I need two LLC's in this case?

Dave Toelkes · Answer

Don't overlook the requirement to also register your LLC in CA, too.  You can't avoid the CA fees by forming an out of state LLC.  So, why not just form the LLC in the state where you live, then register it in the state where you will be doing business?  this way, you can sit down face-to-face with a local attorney whose practice includes establishment of business entities.

Julian L. · Answer

Yes, it seems like a simple process. Whats the best way to get a registered agent?