All Forum Posts by: Mahender Bist

Quote from @Mahender Bist:

Quote from @Ashish Acharya:

@Mahender Bist For properties in Alabama, forming an Alabama LLC is simpler and provides property-specific legal protection without requiring foreign LLC registration in the state. While Wyoming LLCs offer anonymity and tax benefits, you'd still need to register it in Alabama and California, adding costs and complexity.

If you are not flipping properties, there is no need for Rehab LLC.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

Thanks @Ashish Acharya! You mentioned that if I create an LLC in AL, I don't need to create a foreign LLC in CA. Can you share more insights on this?

If your Alabama LLC conducts all operations and income generation strictly in Alabama, you may not need to register it as a foreign LLC in California. However, California requires foreign registration and the $800 annual franchise tax if the LLC is deemed to be "doing business" there, such as managing operations or signing contracts from California. CA also deems you doing business in CA if you are general member of the LLC. People use anonymous structure to avoid this. Your attorney or CPA should be able to create tax efficient structure for you.

To avoid this, keep management and decision-making localized to Alabama, and consult a CPA or attorney to ensure compliance with both states' regulations.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

All good points. Some great tips I have learned over the years: bump every property liability coverage from 300k to 1M. It does not cost very much more. Get the umbrella policy. I think I pay $16/mo for an additional 1M personal liability protection. But, i do have a couple of LLC's, mainly for transferring property to children or spouse when I drop dead. Just have formation docs written as "last man standing" gets it all.

@Mahender Bist

i know this wasn't your question... but i have to ask.  you state that you're based in CA and are about to start buying properties in AL.  do you know the market in Alabama?  do you have a team there?  do you have experience in renovation?  will you go there in person to supervise and check in on your projects?

all of that is way more important than an LLC.

@Mahender Bist For properties in Alabama, forming an Alabama LLC is simpler and provides property-specific legal protection without requiring foreign LLC registration in the state. While Wyoming LLCs offer anonymity and tax benefits, you'd still need to register it in Alabama and California, adding costs and complexity.

If you are not flipping properties, there is no need for Rehab LLC.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

Quote from @Corby Goade:

The best advice I can give is talk with your attorney. BP is probably the worst place on the planet to get legal advice. You'll get people spewing gospel that have never done a deal. 

There's no right or wrong way to do this, just varying levels of risk and reward and YOU need to understand what they are for whatever strategy you choose. 

@Nathan Gesner said it best, IMHO- the need for an LLC is totally exaggerated on BP. I'm not saying you shouldn't have one, but it shouldn't stop you from taking action either. If you know and follow the law, especially when it comes to PM, there is very little to worry about. When you start "picking" tenants or doing favors or acts of kindness for tenants is really when you can get yourself in legal trouble.

Best of luck!

Asking an attorney if you have enough legal protection is like asking an insurance sales guy if you have enough insurance. The answer is always no.

LLCs are overhyped, especially for people starting out with buy and hold and are not even running a real "business" (yet). Get good insurance, plus an umbrella policy. I'll skip the details, you'll find thousands of posts on BP on why.

You probably want an LLC for your flips in the State where you flip. Read a few books about flipping, they spell out the details.

@Mahender Bist

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.

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. CA taxes residents on worldwide income but may provide a credit for taxes paid to other states.

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. Of course, with all things, the answers to all these matters will depend on the circumstances.

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 and/or spouse live in CA, you probably want to arbitrate in CA if the two of you had a disagreement. It may also make it easier for your estate planning attorney to line up ownership with your estate plan, assuming a CA-estate plan if a CA resident. 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.

*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.