Applying for an LLC when owning properties in multiple states?

Question

I currently own a buy and hold rental in Baltimore, and plan to relocate my primary residence to the DFW area.  Once I settle in, I plan to purchase another buy and hold rental in TX.  In which state should I file for an LLC?  Are there other options to consider?

Account Closed · Answer

@Gina Baker  Gina, with all respect, please talk to both a lawyer and a CPA.

It is very easy to form an LLC in both Maryland and in Texas.  If you don't have a place to receive mail, then you can hire a company like InCorp Services (about $100 per year) to represent the LLC.  This is who will receive things like court documents and subpoenas on your behalf.  You will have the choice of creating one LLC for each state, or one LLC owning properties in each state.

If you have a Texas LLC that owns the property in Maryland, then you will need to register in Maryland as a "Foreign Limited Liability Company" with an additional $100 filing fee.

In Texas, it's a bit more expensive.  Registering a new domestic or foreign limited liability company runs $750.

So from a filing perspective, doing it yourself, you're looking at $950 out of pocket right off.

That part is easy.  Here's the hard part....

Texas does not have an individual income tax.  If you hold the properties in your personal name, you will need to report the Maryland portion of your income on a non-resident Maryland income tax return once you move, but you will not be taxed in the State of Texas for personal income (you still have to pay Federal income tax).

HOWEVER, if you have an LLC, that LLC will be subject to a Texas Franchise Tax.

I would hire a CPA/Lawyer that has Multi-State Tax Experience and talk with them about this.  Texas is tough and aggressive on Franchise Tax audits.

Edward B. · Answer

@Gina Baker, a registered agent is someone located in the state that your company does business in to get "served" should a lawsuit be brought against your company and receive official communications. They don't want to have to try to track you down in another state. There are plenty of entities that provide this service. Typically costs $100-$150/yr.

Nicole A. · Answer

You'll get a million answers. Some will say to open your LLC in Deleware or Nevada for "extra protections". Some say no need for a LLC at all. You will find with a LLC that you'll possibly have a harder time finding banks to fund you and your LLC will get slightly higher interest rates.

In MD, the yearly cost for a LLC is $300. If your LLC is from another state, but you do your business (ie own rentals) in MD, you'll then pay a foreign entity fee, which I don't know that amount is.

If you want a LLC, I recommend personally to have the LLC opened in the state you do business. So, if you have some rentals in MD and FL, you'll have a LLC in MD and a LLC in FL.

On the other hand, you can just own them in your own name, get a PO Box with "Street Addressing". When they issue you that kind of address for a PO Box, you can use it as your business/personal address that will reflect on public property information. That way, no one can easily look up where you actually live.

If you own in your own name, simply have good home insurance AND umbrella insurance.

And most of all, no matter if you own in a LLC or your own name, know your local real estate/rental laws!

Kevin Marques · Answer

Hi Gina,

I am not a lawyer by any means but in my research I learned there are a couple things to know. You only need to have an LLC presence in the states where you do actual business. Where you reside doesn't matter. There are two ways to do this to my knowledge.

1. Form an LLC in each state you do business

or

2. Form an LLC in one of the states (Baltimore) then file for what is called " Foreign Business" in the other state "Texas." Now what is considered Foreign Business may vary state to state so perhaps it may be easier to do number 1.

Hope that is a start,

Kevin

Ronald Rohde · Answer

Texas lawyer here. With respect to the Texas Franchise Tax, is it unlikely you will owe anything, its more just the hassle of filing a "no fee due"

Gina Baker · Answer

You all are a wealth of knowledge, and I am grateful for the responses!  For now, you've given me a lot to consider, and I will continue to do my homework, and consult with CPAs/lawyers when the time is right.  Thanks!

Jeff B. · Answer

Sorry you took it that way - - I was only referring to the issue that many never get told and are mislead by partial information.

Nicole A. · Answer

I use Incorp for my Registered Agent and pay $49/year because I had found another company that offered that price and Incorp matched the price.

Nicole A. · Answer

@Jeff B. Take a second read at what I posted about PO Boxes. :-) I said that some Post Offices offer "street addressing". This is when they issue you a mailbox with an address formatted as such (rather than PO Box format):

123 Smith St., #556Baltimore, MD. 21222

It's like when you go get a UPS box, but cheaper! Again, not all Post Offices seem to offer a box with this format of an address, but I do recommend it. Because then you can indeed use it as your business' legal address.

Al Lev · Answer

You may consider more sophisticated strategy while saving your money.

1. Open the LLC in Wyoming (Cost $150 + $52/year + 25-50$/year for Registered agent)

2. Create a Land Trust for each new property

3. Place the property in the Land Trust initially naming yourself a beneficiary (banks should allow financing in that case)

4. Do an assignment of interest to LLC in exchange for LLC shares.

5. Maintain the insurance and require rental insurance on each property with the liability coverage.

This would eliminate the need to maintain multiple LLCs in different states.

Applying for an LLC when owning properties in multiple states?

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