Real Estate Attorney & CPA Referral

[Tony Robinson]

Hello BP Community! 

I live in California, and I'm in the process of buying an investment property (SFR) in Louisiana with a partner. We're thinking of setting up an LLC but would like to consult with a professional. Can anyone recommend someone? It'd be even better if this person has experience specifically with residents of California who invest out of state.

Thanks! 

[Katie L.]

@Tony Robinson

Have you decided where you will be forming your LLC? In California, having an CPA draft your LLC operating agreement is generally considered the unauthorized practice of law, that you may need a lawyer for that service. As for CPAs, I know several in So Cal if you're willing to work remotely. You'll definitely want either a CPA based in CA or one well-versed in CA laws if you go out of state, because California can be somewhat complex, and as a resident taxes you on all your income (versus Louisiana which likely would require just a nonresident income tax return).

California is a sort of beastly state when it comes to taxes and filings. Even if you create a non-CA LLC, if you are managing the business from California, you will be deemed to be "doing business" in California and therefore subject to CA taxes. California charges a minimum tax of $800 a year per LLC, and more if you have gross receipts in excess of $250k. So, if you create an LLC in another state, you will need to register it as a foreign LLC in California. Though, this process will be the same for the other state (if you created a CA LLC you will need to register it as a foreign LLC in the state in which you are doing business/holding property). This means that you will need to pay registration and filing fees in at least 2 states if you don't buy CA property.

This article goes into a lot of the considerations about whether to form an LLC or not: https://www.mmpph.com/wp-content/uploads/2019/04/May-2019-newsletter.pdf

Be sure to tell your accountant that you now need to file non-resident income tax returns in each state where you own property as well. Most likely the state where the property is located is where lawsuits would be brought if they are something for personal injury like a trip and fall or something of that nature because the “cause of action” arose in that state. So even if you pick a state with stronger protections like WY or NV, the cause of action arose in the state where the tenant fell, so likely that the court where the accident happened would have jurisdiction.

California tends to have more laws on the books and requirements and restrictions that it can be a good idea to form a CA LLC for out of state property so that you as a CA resident are covered, and to try to have your contracts fall under the purview of CA courts. It also is helpful to have a California LLC in case you ever sell that property and move into another state so that you do not need to form a new LLC altogether with new operating agreement, just re-register in the new state as a new foreign LLC. Also, if any disputes were to rise between you and your partner, it would make sense to go to the courthouse down the street instead of in Louisiana to settle your dispute (or to an arbitrator). But, that is not always the right answer and you should speak with someone familiar with your personal situation to get advice specific to you.

*This post is informational only and is not to be relied upon. Readers are advised to seek professional advice. This post does not create an attorney-client or CPA-client relationship.