Setting Up Legal Entites

[William Davidson]

Hi BP,

My brother and I lost our father a couple years back. He left us some amount of money, and we already have one deal in California that is bought outright. We are looking to invest in Arizona, since it is close to him in AZ and we could check on the prop/ maintain it easier. When it comes to having two properties in two different states. How should we go about setting up this partnership?

1. 1. LLC filing as a partnership holding both properties?
2. 2. LLC filing as a partnership holding llcs below that each have the properties seperately?
3. 3. No LLC as of right now?

Also, what is the best way to insure these as well and protect ourselves?

Thanks,

Billy

[David M.]

@William Davidson

I’m sorry to hear about your father.

Using a LLC (or partnership) would be cleaner for splitting up the profit/losses every year and when it's time to sell. At the end of the year, a partnership tax filing is prepared and a k-1 is generated for each Member so that each individual person can prepare their tax return.

You should have a LLC registered in the State that the property is located in. You can have one LLC which is registered as a foreign entity in the othe states, or separate LLC's for each State. People do the latter when trying to obtain anonymity. You file first in the anonymity preferred state, then file for LLC in the other states with the first state being the owner/member.

Just remember that when title is held by a legal entity, you can’t get regular residential financing. It’s a commercial loan. So if you have to refi later , it will be a bit harder and more expensive.

Also, CA has. ~$800 annual filing fee for each LLC. I believe if you are a resident of CA, they charge the same fee if you own out of state LLC. So, that adds up pretty quick when you have multiple LLC's because of different states. Not sure how CA residents get a round this — I think they don't...

I hope this helps. Talk to a professional or two to get yourselves set up right.