Which state should the LLC be formed

Question

I have a question for the everyone.  I will need to form an LLC soon as I am approaching the maximum number of mortgages i can get in my personal name.  I live in NJ but my properties are out of state.  Does anyone have any input on which state i should form the LLC? Where I live, where I buy or another?  Pros and Cons of each approach? Thanks in advance

Jerry W. · Answer

@David D'Ambrosio, usually the best way is to form the LLC in the state where you will be owning the property.  There are some advantages to having then formed in WY or NV, etc., but unless you are talking a lot of properties it may not be worth the hassle.  You should register the LLC in the state where you own the property, if not you might not be able to countersue if your entity is sued.  I have always had to personally guaranty any loans my company gets, those do not count against your 10 you can have in your personal name.  Take the time to buy a corporate book to keep minutes in etc, and do some reading up on business entities so you don't unknowingly violate any of the operating rules of LLCs.

Good luck.

Steve Vaughan · Answer

From what I've seen it is best to establish the LLC in the state of the property if you are adamant about the LLC thing.   More than one attorney has recommended the state of the property, but we don't even know which state you are talking about.

That said... I don't buy OOS and I only hold commercial 5+ units in LLCs, not little houses with debt.  So I guess I'm only worth half of 2 cents here.

Frederick Kirk Wendel · Answer

To start I am not a expert

@David D'Ambrosio from what I have seen in my 'research' LLC is about asset protection primarily. Further, that seems to work best if in the state the prop in located.

Also one LLC can own or be a member of another LLC. and as to the registering in another state, it can cost extra. but might work in your situation.

All the information you gather here or elsewhere should be so you can ask the right questions when you meet with CPA and Attorney.

Items I am looking into

Annanimity : so people looking do not know all you own.

member manager vs.  manager managed : who is calling the shots.

Tax filing status : Partnership, C corp, S corp, Disregarded (often used in multy LLC structures). All this is about how the money is reported on tax forms. @Jake Hottenrott maybe you could give some comment on this part.

Last thought. a New LLC has no track record of its own. So I would not be surprised if any loans you apply for with it require your personal info to back it.

would that bring you back to maxed out on personal loans?

Hope this gives you more ammo for your discussions with the professionals on your team.

all the best

Kirk

Basit Siddiqi · Answer

David - The only reason I brought it up is because you said you "need" to form an LLC. I just simply mentioned you didn't need to. I also provided my opinion to your other question on where you would need to set up the LLC.

Carl Fischer · Answer

@David D'Ambrosio

Ask the bank what they require -if you are doing this for financing. Most banks I know still want a personal guarantee in a LLC. Also look at annual costs for LLC by state.

Basit Siddiqi · Answer

@David D'Ambrosio - When you say you are approaching the maxiumum amount of mortgages under your own name - I assume you mean conventional mortgages written under the guidelines of Freddie Mac/Fannie Mae. You are still able to get portfolio loans under your name without the use of an LLC.

However, an LLC can provide some liability protection(a lawyer will tell you what those protections are).

Many will suggest forming the LLC in the state the property is located in. If you form it in NJ and own the proprety elsewhere - you will be required to register as a out of state LLC and pay essentially double the LLC Fees.There are advantages to setting up an LLC in states like wyoming, Nevada and LLC for their extensive business friendly case law. But this will result in your having to also register as an out of state LLC and pay fees to other states.

Jake Hottenrott · Answer

@Jason DiClemente - The LLC does not have to formed in the state you are located in.  You can definitely use a registered agent to form an LLC in any state.  Now you can register in your home state and then register as a foreign entity in each state that you do business.

@David D'Ambrosio - You will want to speak to an attorney to see what is best from a legal perspective on where to start your entity and if there are substantial benefits to be had by doing that vs what it cost to set up a more elaborate structure.  As a CPA, I'll speak from the tax perspective and say that it doesn't matter what state your entity is set up in.

Ali Boone · Answer

I would absolutely talk to your (hopefully investor-friendly) accountant over deciding based on what everyone here says. Only your accountant or an entity specialist can say for sure...it depends on the state you live in, where the properties are, etc.

Basit Siddiqi · Answer

@David D'Ambrosio Answering that question may go into a small LLC vs holding in personal name debate.I'll keep it shortLLC costs include set up costs, annual costs, costs for registered agent etc.Financing through an LLC requires an extra hurdle of paperwork.With that said - getting an LLC may benefit you since it sounds like you have assets(4 or 10 financed properties).A lawyer may be in a better position to answer this question.

Which state should the LLC be formed

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