LLC Out of State, Use my PM's Address?

Question

Hello All,

I am located in California and have started investing in Wisconsin (3 houses currently, working on my 4th). I've reached a point where I think it would be a good idea to form an LLC, but it looks like it is recommended to create the LLC in the same state that you are investing in. My property manager said I can use her business address (she is located in Wisconsin) as the address for my LLC. Are there any cons to setting up the LLC like this? Any other better alternatives? I am just concerned that I won't get my mail.

Thanks in advance!

Katie L. · Answer

@Collin Chew

California is a sort of beastly state 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 need to pay registration and filing fees in at least 2 states if you don’t buy CA property.

This article goes into a lot of the considerations about whether to form an LLC or not: https://www.mmpph.com/wp-content/uploads/2019/04/May-2019-newsletter.pdf

Be sure to tell your accountant that you may now need to file non-resident income tax returns in each state where you own property as well. Most likely the state where the property is located is where lawsuits would be brought if they are something for personal injury like a trip and fall or something of that nature because the “cause of action” arose in that state. So even if you pick a state with stronger protections like WY or NV, the cause of action arose in the state where the tenant fell, so likely that the court where the accident happened would have jurisdiction.

California tends to have more laws on the books and requirements and restrictions that it can be a good idea to form a CA LLC for out of state property so that you as a CA resident are covered, and to try to have your contracts fall under the purview of CA courts.  It also is helpful to have a California LLC in case you ever sell that property and move into another state so that you do not need to form a new LLC altogether with new operating agreement, just re-register in the new state as a new foreign LLC.  Also, the state of formation is likely where internal disputes would be brought among LLC members, so if you and a partner live in CA, you probably want to arbitrate in CA if the two of you had a disagreement.  But, that is not always the right answer and you should speak with someone familiar with your personal situation to get advice specific to you.

As to your questions about the address and agent for out of state, if you trust your PM, that would be the cheapest way.  There are companies that you can hire, who may also scan mail to you or upload to an online portal.

*This post is informational only and is not to be relied upon.  Readers are advised to seek professional advice.  This post does not create an attorney-client or CPA-client relationship.

Cameron Tope · Answer

Collin,

We were advised by our attorneys to setup the LLCs in the state where the property is located. Unfortunately, I don't have all the reasons why.

Note: our LLCs that own the property are owned by a "Holding Company LLC" that is based in Wyoming. The reason it's based in WY is the annual renewal fees are cheap and WY doesn't give out the owner of the LLC's information.

Hope that helps!

Casey Powers · Answer

As someone who used to be a registered agent in Nevada and now a property manager: NO. Get a registered agent - it’s a completely different job. Your PM manages your rentals. A registered agent receives mail for the LLC and reminds you when it’s time to file renewals etc.

A property manager is NOT a mail receiving agent. Plus their office cannot serve as your LLC “business address”. Frankly, any property manager who would agree to such an arrangement is an idiot IMO.

Crystal Smith · Answer

We originally established our LLC in Nevada & one in Delaware because of the privacy laws in place in both states, then registered the LLCs as foreign entities when investing in other states. Then starting investing in Illinois using Land Trusts, which provided the same kind of protection as Nevada and Delaware, and decided on establishing Illinois serial LLCs. We don't do any business in Wisconsin so I can't give advice other than to say evaluate the protection you get with  a Wisconsin LLC versus another state and just registering the LLC as a foreign entity.

I recommend against using your property managers's address. Get a registered agent. The agent will keep all of your records and provide reminders of state-required filings.

Bob Floss II · Answer

@Collin Chew You have to maintain a registered address in the state where you are operating so someone is responsible for receiving notice of litigation within that State. You can have an LLC in any State, but you'll need to file as a foreign LLC to operate in another State. It's pretty easy to file.

Brie Schmidt · Answer

@Collin Chew -  I have four WI LLC's - all are at my home address and I use a WI registered agent

Marcus Auerbach · Answer

@Collin Chew I like to think of an LLC as a firewall between my assets and businesses. If one catches on fire, the others are isloated for that fire. In other words, having one LLC is kind of pointless, it will still wipe you out. You have to have several. Now the next question becomes what type of net worth would you want to have in each LLC? It's pretty clear for a 100 unit appartment building - you'll want your it in your own LLC, just because of the value it represents. Does it make sense to LLC a single duplex? If you think about your personal assets in CA - I wonder how hard it actually is for someone in WI to go after someone in CA.... questions for an attorney.

In any case, watch this video from Brandon Turner

Cameron Tope · Answer

The attorney in Las Vegas is the registered agent.

Chad Nagel · Answer

Use registered agent service in state for llc docs. $50 / year.  Then set up mailing address for property at county property appraiser/ gis to go to pm. You can add another layer if you wanna be fully removed by using a mail service for your biz.

Mike S. · Answer

@David M.

The use of a WY holding LLC is multiple. The primary reason is that WY is one of the few states that offers the charging order as sole remedy. That is what makes your LLC structure an effective asset protection entity for outside liability. Most states don’t.

On top of that, WY also offers anonymity and has reasonable fee.

LLC Out of State, Use my PM's Address?

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