Hi everyone. I am in the process of closing on my first out of state (Tennessee) rental property. (Sept 8 is expected closing date) I have a few questions. I am doing my research on setting up an LLC and one thing I read about is choosing a registered agent to deal with the paperwork once it is set up. I also read that it is not necessary. 1. What is your view on being my own registered agent? 2. Should I set up a bank account in the state I have my investment property? Does it matter? 3. Is it wiser to pay a lawyer to set up my LLC or is something like Rocketlawyer.com sufficient? 4. I have people I know in Knoxville but I know they are busy with their own lives. I was listening to a BP video learning about the Rentredi app that is included with the Pro membership. (which I have) I am debating managing this myself but want to ensure I don't fall "victim" to any huge monetary mistakes of a newbie. :-) I am already compiling a list of handyman, HVAC, etc with the help of my friends that own properties in the area. I am trying to figure out if I should suck it up and just pay a property manager for now or handle myself. What has been your experience as an out of state landlord? I appreciate any and all feedback. Thank you!
100% what @Bjorn Ahlblad said. Unless you have local connections you'll need a PM company to help you. Without a quality PM you'll bite the bullet over and over again. Screen the PM company. Meet with them in person. Ask the detailed questions before signing a contract.
Dealing with people is challenging. Enforcing a lease requires a strong backbone. There are hundreds of thread posts about PM, screening tenants, writing leases, etc. Read as many as you can.
@Kirsten Wright I would not bother with the LLC at this time and I would not try to manage my out of town property myself. LLC adds expense and in your case is completely unnecessary, wait till you have more properties. I would also suggest that with your level of LLing experience you hire a decent PM. They can save you money and frustration especially out of state. Do what you want but you did ask for advice. All the best!
Thanks! I spoke to my CPA earlier and he suggested I just do an umbrella policy, especially since CA is money hungry and wants their portion of LLC fees. :-/ Working on my quotes now. I am thinking of the PM situation too. Yes, easier for sure...but 10% is a good chunk of change to give away each month. Besides the 1st month's rent. That averages out to $348/month when you combine all of that. ...I do know there are advantages though. Thinking it may be the wiser choice until I get some solid contractors in place when things are needing fixing.
100% what @Bjorn Ahlblad said. Unless you have local connections you'll need a PM company to help you. Without a quality PM you'll bite the bullet over and over again. Screen the PM company. Meet with them in person. Ask the detailed questions before signing a contract.
Dealing with people is challenging. Enforcing a lease requires a strong backbone. There are hundreds of thread posts about PM, screening tenants, writing leases, etc. Read as many as you can.
There are several considerations that can go into the analysis of whether you need an LLC or whether a large insurance policy will suffice. Will depend on several factors like the type of property, type of tenants, your risk tolerance, other assets you own, your estate planning, laws where the property is located, etc. Same goes for number of LLCs and what to fund them with, since bear in mind that CA tends to be more cumbersome and expensive to have LLCs than other states.
California is generally more cumbersome than other states 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 likely be deemed to be "doing business" in California and therefore likely 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 likely 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 may need to register it as a foreign LLC in the state in which you are doing business/holding property). This means that you will probably need to pay registration and filing fees in at least 2 states if you don't buy CA property as a CA resident.
Any lawsuits should be limited to the assets of the LLC and not your personal assets (assuming you run the LLC appropriately and the corporate veil is not pierced, some debate as to SMLLC). But, an LLC will not limit you from liability in total. You can still lose your investment in the LLC. Or, a charging order may be granted.
If you're going the umbrella insurance route, perhaps see if it will cover you for several things including just the routine slip and fall (like mold or earthquake). You'll also want to ensure you have a good property manager to look after the upkeep of the property if you are not there to notice anything deteriorating or which may need attention.
Creating an LLC in California could cost you a minimum tax of $800 every year. You would have ongoing filing requirements with the State and would need to keep business records and documentation. California does not recognize series LLCs.
You also want to look at whether a pass-through entity helps your bottom line and your taxes. There is a fairly new 20% pass through deduction you may qualify for that could help you, but not everyone qualifies. You should still be able to get this even if the properties are not in an LLC, if you qualify.
These are all things you will want to discuss with your attorney and CPA. If you need references for either of them in San Diego, let me know.
*This post does not create an attorney-client or CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.
@Kirsten Wright Did you get the property closed today? Although the rental market in Knoxville is one of the top 5 in the US, there are still some submarkets that are much stronger than others. If you provide more information about the house specification and the specific area in Knoxville Area where the house is located, I can provide better recommendations and suggestions.
