Good holding options besides an LLC?

[Norman Berman]

Hi folks,

Wowwww I am so pissed at my home state of California right now: 

I am planning out of state investments in buy-and-hold multi-family properties. (Insert standard California refrain: "It's too expensive here")

I was planning to form an out of state LLC to avoid California's annual $800 LLC fee.

However, California law requires that if an out-of-state LLC is managed from within California, it still has to pay the $800 annual fee!

This will destroy CoC return on my first property. And it means that I have to hold all my properties under the same LLC unless I want to pay the $800 fee for each of them.

Are there other options I can consider besides an LLC, which would avoid this fee?

Thanks!

[Michael Plaks]

@Norman Berman

Your question is flawed because it does not specify what "good" means to you. Good for what? 

You're always allowed to hold any properties in your own name. There's no extra CA punishment for that, but you and your properties are potentially exposed to legal risks, so you might lose the properties if things go wrong. What exactly are the legal risks is the lawyers' domain, and I'm not one of them. Worse, lawyers do not agree between themselves.

If you believe that asset protection is important to you, then you need some entities. The moment the word LLC enters the picture, your lovely state will want $800. You can create Land trusts that do not change anything for taxes, do not trigger the $800 extortion, provide some anonymity, however they do not really provide any asset protection, from what I understand.

Some investors and lawyers believe that a more complex structure combining land trusts with out-of-state LLCs can defeat the $800 CA ransom while still providing asset protection for the out-of-state properties. I cannot say anything on this topic, not being an attorney. Just keep in mind that these structures are more complex and therefore more expensive, so you will be trading $800 tax for a higher cost of setting it all up and possibly some annual compliance costs on top of it.

Maybe accept your $800 sacrifice to the Evil Lords of the West Coast as the cost of doing business and focus on increasing your cash flow.