Investor · Hermosa Beach, CA · Member since 2016 · 44 posts · 13 votes
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?
Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes
6y
@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.
Rental Property Investor · Cleveland, OH · Member since 2020 · 19 posts · 15 votes
6y
@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.
Real Estate Entrepreneur · Mid West, East Coast · Member since 2015 · 3k+ posts · 1k+ votes
6y
@Damon Wong There are no restrictions on where you LLC can buy. Foreign filing is also not a requirement. Typically the title company or attorney will ask for your LLC docs prior to closing to make sure you are legit, have an EIN number and in good standing in your incorporated state. All the best.
Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes
6y
@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.
Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
6y
Two comments to @Mike S. suggestions. Again, a disclaimer: I'm not a lawyer and therefore could be wrong.
1. Having a WY LLC own a local LLC for charging order protection may not be necessary in some states. For example, a TX LLC has its own charging order protection.
2. Using a local property management company probably does not solve the problem. The LLC owning the property is still conducting business in that state and still needs to be registered as a foreign company.
2. Using a local property management company probably does not solve the problem. The LLC owning the property is still conducting business in that state and still needs to be registered as a foreign company.
Yes you need to check with your state requirements; in some state, just owning a property is not conducting business and only the operating entity (the management company/corporation) has to be registered in the state.
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)
@Mike S. Any other "should do" considerations as I transfer the property from personal into LLC? (I.e. homeowners insurance, etc)
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.
Attorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes
6y
We handle this all the time for our clients. You need a local entity for "conducting business" collecting rent, entering into contracts is doing business. You need to look at the total setup costs, annual cost, and the benefit to running an elaborate setup. In Texas, we have series LLCs which are great for cost conscious investors.
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)
Using a quit claim deed instead of a warranty deed has no affect on the coverage under the title policy. What matters is if the Grantee on the deed meets the definition of Insured under the policy. If the Grantee meets the definition coverage continues for the Grantee. If it doesn't, the coverage continues for the named Insured under the terms and conditions of the policy, but not for the Grantee. Take a look at the Conditions and Stipulation section of the policy for the definition.
What is different is whether the Grantee has the ability to sue the Grantor for breach of warranty. No for the quit claim deed yes for the warranty deed. However, having the ability to sue doesn't mean the suit would be successful. Winning a breach of warranty suit is not as easy as just filing suit, its tougher than most people realize. Its much easier to either make sure the Grantee meets the definition or if it doesn't, buy a new title policy insuring the Grantee.
I'm not an attorney and this is not legal advice. For that you might want to talk to a good real estate attorney, preferably in the county where the property is located.
Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes
6y
@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.
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.
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.
Attorney · Slidell, LA · Member since 2016 · 322 posts · 179 votes
6y
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.
Investor · Hermosa Beach, CA · Member since 2016 · 44 posts · 13 votes
6y
Thanks again all! This has been very informative & helpful. Structure way-forward is now pretty clear; with so many options it's nice to bounce these quick-Q&As off the community!