Lender · Fort Worth, TX · Member since 2016 · 77 posts · 20 votes
Hi all, my first post here. I am planning on providing hard money loans to a number of investors/flippers across the country, the first close being in Pennsylvania in the coming weeks. I live in California.
I'm confused as to where to house my LLC. I've heard Delaware because it's inexpensive to file and the taxes are lower, but I've also gotten the advice to just house it where I live (California). I'm reluctant to house it in Pennsylvania because I know I won't only be doing business there, and also I don't have an address there or registered agent.
Lastly, will I have to register the LLC in each state that I am active in? I'm not actually purchasing property, so I'm not sure what the ramifications are. I've heard you don't have to register where the property
Any advice would be extremely helpful, keeping in mind that it might be best just to consult a tax attorney.
I think you need to check one other issue. In the past, it was not legal to take action if the company did not have a registration in the state where the property was located. In the case I know, because the loan was on an OH property, the lender needed to have an OH registration. Either the company had to be set up there or it had to register as a foreign company (from another state). In some states, the cost of registering as a foreign company is the same as registering the company in the state. CA was one example.
And you should be clear what the laws are for the state where the property is located when it comes to your right to offer loans in that state.
The associated fees for a Delaware LLC are actually higher than most states. There are many reasons to incorporate in Delaware but a lower fee is probably not on the list.
You should probably register as a foreign entity in the state where you do business. As a practical matter, you might be able to get around it by including a jurisdiction/choice-of-forum clause in your loan documents. But most states have various laws that apply to hard money lenders. My guess is that you will probably have to register in each state as a foreign entity to meet those requirements.
In terms of registered agents in general, you can just hire a professional service to take care of it. The costs are relatively minimal.
Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.
I would suggest speaking to an attorney in your home state that is familiar with hard money lenders. You might also want to speak to a CPA about state taxes since you are lending in other states. The hard money lenders I know lend in 1 or 2 states and are registered in both of them as LLCs and foreign LLCs. You need to verify there are no licenses required to hard money lend. Usually there is not but this is where an attorney can assist you.
you have license issues.. if your business is run out of CA.. it could be like Oregon. does not matter were the loans are made you must adhere to CA license rules. and there are 12 other states that require state licenses to lend money on 1 to 4 unit properties.. the rest you can do that without a license.
but before you go off half cocked I would get with a local Attorney who knows CA lending laws.. I got nailed for this in my early days in Oregon lending in states that did not require a license..
So if that's an issues it may be preferable to set up the company in a state that does not require a license . not just LLC cant just start and LLC but do all your processing and stuff from CA.
In general @Eric Boshart, as a lender, you must follow the licensing laws in the state you are lending and the investor laws in the state of your investors, if you have any. Plus federal law, of course. It doesn’t matter where you live. What matters is where you loan.
If you are in the business of making or originating real estate loans in CA you must absolutely be licensed in CA. This would mean either be a RE Broker’s License or CFL. There are some exceptions if you just do a few loans, but there are also exceptions to the exceptions.
If you loan in PA you must follow any licensing laws Pennsylvania might have. A CA lending license will not apply in PA or any other state. Nor will any of their licenses apply in CA.
Licensing is something you should discuss with a good lending lawyer in that state. Talk to some of the larger local HML's and get the name of their lending lawyer. Do not go to a run-of-the-mill RE attorney for this. Some lending attorneys claim they can address licensing in every state. My concern is that this might be at a very top level.
LLC's are a different story, where residency is important.
Since you reside in CA, you will be taxed in CA on world wide income. That is, whether your LLC is domiciled in another state or not is irrelevant. CA will still charge you the $800 minimum franchise tax and all other applicable income taxes. They will also require you to register any out-of-state LLC here in CA.
Thus, you are better off registering your LLC in CA and then as a foreign entity in any other state you choose to do business in. If you ever have to foreclose, file, or take any legal action, your LLC will have to be registered in that state anyway, as @John Corey correctly mentioned above.
For these reasons, it does not pay to register in DE, NV, WY, or any other states you often hear about as LLC friendly. Nor does it matter where you made your income -- even if every dime was earned in PA. Our great state just doesn't care.
Thank you so much everyone for the time. I am consulting with a tax attorney, but from what I've seen, I should domicile in my home state (which you are right, have lower filing fees), and register as a foreign entity in the states in which I operate.
