Separate Out-of-state LLCs, California investor (New member)

[Sagar S.]

I am a newbie in RE investing. I've been researching, reading and listening to BP podcasts. I am planning to buy rental properties out of state. But my research stopped at forming LLCs. Opening a separate out-of-state LLC for each rental property, is incurring CA's $800 tax per year per LLC. I want to use LLC's for assert protection. What do general CA investor do regarding LLCs ?

Any info is appreciated.

Thanks.

[Naseer Khan]

@Sagar S. I have a lot of clients from California that are investing out of state. One strategy that may reduce costs could be to open a California LLC as your primary company. Then as you invest in other states, open a separate LLC in those states and make your CA LLC the owner/member of the out of state LLC. Alternatively you can apply for a "foreign business designation" in each state through your CA LLC.

This way you only pay the CA franchise tax for one LLC. However, You still have to pay the other states' franchise taxes or fees but they are likely less than CA.

Moreover, you don't have to place each property in its own LLC, you can place several properties in one LLC. The number of properties per LLC can be determined by certain factors: how much equity you have in the properties, what kind of tenants do you have in the rentals, etc. You have to weigh out costs and liability risk.

The above is General advice and you should seek private counsel.  This does not create an attorney client relationship.