Can LLCs own rental property in other states?

Question

BP Community,

This should be an "easy button" question, but couldn't find a direct post/forum.  I have a Wyoming LLC.  Can I use this LLC to own single family rental properties in other states?  I know the answer is "yes," but I guess I'm asking how have others done it, and what are some considerations.  I specifically have 7 properties across 5 states.  Some options I've seen so far:

a) Each state (or even property) has it's own LLC and the Wyoming LLC is the single-member of each of those.  Seems like a lot of excess state filings

b) Each property held in a trust owned by the Wyoming LLC

c) Wyoming LLC files for foreign business license in each state

d) Is it even possible to just transfer (quit claim) title/deed for each property into Wyoming LLC directly?

Thanks all

Mike S. · Answer

@Damon Wong

You can have any property owned by an LLC from any state.

However the issue is when you need to do anything in the property state like filing an eviction, contest a code enforcement action, pay state taxes, etc you will quickly learn that you can’t as your foreign LLC won’t be recognized by that state. Your property need to have an entity that is legally recognized by that state.

There are different ways to approach the problem.

First as you suggested you can foreign filed your LLC with the property state. Often it will cost as much or maybe more money than just creating directly an LLC in that state. Also why would you want to put all your properties in the same LLC. It creates more risk for you. It is much better to have each property in its own separate LLC anyway.  Have this local LLC owned by a WY LLC to gain the charging order protection and get only one tax filing.

Second you may use a land trust in the property state. It won’t add any asset protection and it may not work in every state.

Last you can use a property management company in that state instead. This company will be the one doing business in the state.

Also you mentioned doing a quit claim deed to transfer the property. Please don’t. Use a warranty deed instead to avoid creating title chain problem and also maybe voiding your title insurance.

Mike S. · Answer

Yes make sure that all insurances are updated. The name insured party should be the LLC and you can still be additional insured. Some insurance may increase the premium while other wont.

Also be careful if you have a mortgage as it can trigger the due on sale clause. Some lender will accept it as long as you own 100% of the LLC, some won't.

If you want to collect rent from another entity than the one on your previous lease, make sure that you notify the tenant in writing of the change.

Also be mindful that if you have to go to court, you won't be able to represent your entity, you will need to hire an attorney.

Michael Plaks · Answer

@Damon Wong

Not an attorney, so my opinion is not worth much.

If you own a property in Texas, your out-of-state LLC must register with the state. The fee is $750, as opposed to $300 for forming a native TX LLC.

Robert Burnell · Answer

@Damon Wong

I don’t see any issues beside filing fees. I’m in Florida so they charge annual filing fees. I do business in Ohio where it’s a one time filing fee.  Check with the state where you do business for fees.

Sean Morrison · Answer

Best practice is to have the LLC in the same state as the property. States are very guarded on their real estate laws, which are different in each state, and they will give far higher preference to an in-state LLC than out of state. Sometimes, they may even disregard an out-of-state entity. However, your out-of-state company can own the in-state LLCs.

Adam Blachnio · Answer

@Damon Wong

You need to go thru "foreign LLC" qualification and get the registered agent there.

Bonnie Jones · Answer

This guy has a lot of videos on LLCs AND how you can protect your LLCs with Land Trusts.

LLC

https://www.youtube.com/watch?v=F9NS9zwK30s

Land trusts:https://www.youtube.com/watch?v=kJgRwB3XnY0

https://www.youtube.com/watch?v=Dp0zM4MfrbUSearch for more videos on his channel.

Mike S. · Answer

@Peter Walther

When you transfer your property with  a QCD to an LLC, unless your warranty expressly authorize it, your LLC will have no warranty. If later a title issue arise, the LLC will have no recourse against anyone.

On the other hand, if you used a WD instead, your LLC can “sue” yourself and in turn you can go back to your warranty to take care of it.

Peter Walther · Answer

You're right, but my point was the form of deed does not determine if the Grantee is an Insured under the policy, the nature of the Grantee does and whether it meets the definition of Insured under the policy.  Neither form of conveyance voids the policy, it continues under its terms and conditions.

Damon Wong · Answer

@Mike S. @Michael Plaks@Shawn Ackerman

Wow this is great! Thanks all for that input. Sounds like (most things) different states will drive different rules/structures—-so will evaluate each state individually instead of a standardized approach.

Appreciate the quit claim vs warranty deed transfer too. Wasn’t thinking about the title insurance/policy. Any other “should do” considerations as I transfer the property from personal into LLC? (I.e. homeowners insurance, etc)