LLC for Rental Property: Free to Register, Less Per LLC as You Grow

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all right welcome to this edition of the business anywhere. YouTube channel So today we're going to run through a couple of comments from some of our previous videos and hopefully this helps um maybe if you've watched that video this will help clarify some things so we did a video um can you form an LLC in a different state than the one you live in um you can

go back and watch that video on our YouTube channel but we had a comment here it says so if I'm just a single member holding company LLC I could have registered in Wyoming instead of California when I act where I actually live with no issues and would I just need to have a registered agent in Wyoming and change the address on my bank account to a virtual

address in Wyoming so that was the question so in 49 states the answer is relatively clear yes now there are some nuances here if you you live in we're going to leave California for alone for a minute we'll use a different state as as an example if you live in Ohio and you have a single member LLC with no employees and no ECI or no Nexus in

that state then yes you can register that company in any state it really makes no difference if it is a single member LLC treated as a disregarded entity if you are filing if you file a 2553 to be elected as an escort for tax purposes you will need to be registered in the state where you live because you have to have a state tax ID number so

that you can withhold State uh your state payroll tax in the state where you live if you have employees that you withhold payroll tax on you will need to be registered in the state where you or your employees live for example if you operate let's say you live in I don't know Fort Wayne Indiana and you operate in Illinois uh Indiana and Michigan you will actually have

to register your LLC you could have registered in Wyoming but you also need to register that Wyoming entity to do business in Illinois Indiana and Michigan because you have employees in those three states and you will need a state tax ID number to withhold payroll tax for your employees that live in those States so there's a lot of nuances here it depends on how you operate your

business is it a big business is it a small business is it just you working as a freelancer if it's you working as a freelancer with no employees and excluding California you can really register that entity anywhere if you're not even living in the US you can definitely register that anywhere um now California is a bit of an anomaly in this situation because if you live in

California and you're filing your state tax or state income tax return in California if you file and they see that you earned income that on your schedule C if you're a single member LLC and it's a pass through um treated as a disregarded entity it'll appear on your schedule C your tax return the California Department of Revenue will effectively force you to register that LLC to do

business in the state of California and you will have to pay uh the State Franchise Tax and register it and pay the ual report fees in the state of California there could be some advantages for you to still register it in Wyoming for privacy reasons for example and then you register it to do business in the state of California um because maybe you don't want your name

in public record in the state of California but California is a little bit of an anomaly in that situation but again I will reiterate if you don't have employees and by employees I literally mean W2 employees where you're with holding their payroll tax I do not mean 1099 contractors if you have 1099 contractors this is not relevant you can hire them you don't have to register in

all the states you're operating or where your contractors are operating and you don't need to register even where you live if you only have 1099s and it's a pass through to you so I hope that helps and if you need help registering your company in the US you can visit us at business anywhere.i we handle company formation in all 50 States registered agents service virtual mailbox company

compliance and uh remote online notary we also do bank account openings so take care

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all right well then we've got another one from quora can I form an LLC in a different state than I live this is a pretty common question we get a lot because a lot of people read online about forming an LLC in Delaware or Wyoming or New Mexico or Nevada or something like that and and they think well I live in let's say South Carolina can I

form a Wyoming LLC so the answer is it depends it is possible to form it I mean well legally you can form it in any state you want now depending on the nature of the business you're doing in the entity itself depends on whether it needs to also be registered in your home state so for example let's say you are a real estate investor and you live

in uh let's say South Carolina and you're buying rental properties in South Carolina and Georgia absolutely you can and I would recommend this I would register those llc's to own those rental properties in Wyoming and there is no need for you to register that LLC in your home state if the purpose of that LLC is just to own the asset now if you were also going to

be doing all of the property management itself through the same entity then the LLC would need to be registered in that home state of South Carolina because now you have what's called Nexus in the state and Nexus means a physical connection to the jurisdiction where you operate so what that means is like if you have an office or you have employees in that state and you're paying

your employees and you're withholding payroll tax on them and that sort of thing you need to be registered in the state where your employees are located so in this case if you were investing in real estate if it were me I would buy all the properties through one or more Wyoming llc's to separate the ownership from the operational side of the business and then if you were

also going to handle Property Management let's say you were buying a lot of properties and you wanted to do your own property management instead of Outsourcing it I would register another LLC in the state of South Carolina solely for the purpose of property management and that's where your employees can work and you have an office for that and so in that case this is a good asset

protection strategy as well because you're separating the operational side of your business from the ownership of the assets itself and so for example let's say I don't know your plumber in that works for your uh operational business or your property management business uh damages something at your one of your Properties or damages your customer's car well then they could only go after the property management business because

if they were suing it for damages they would be suing the property management business and not suing the LLC that owns the property so you're kind of separating or segregating the liability on the the operational side away from the ownership of the asset side so that's what I would do in that case now another example is if you have an you know a like a normal operating

business for example let's say you live in Ohio and you're starting a plumbing company well in that case you are going to need to register that LLC in the state of Ohio because for the same reason I mentioned before you're going to have Nexus in the state of Ohio you're going to have an office you're going to have employees you're going to have equipment and trucks and

you're going to be physically operating an operating business the key there is an operating business in the state of Ohio um and so it it really depends on your situation what you're planning to do now another example here is if you have a completely virtual business with no employees okay so let's say let's say you have a software company you have a SAS product and it's completely

virtual you don't have an office everyone in your company Works remotely and let's say all of your workers are contractors outside of the US let's say they're all contractors in the Philippines for example um and you live in Indiana you could very easily register that company in Wyoming with no issues whatsoever um because the business doesn't have an operational activity in the state of Indiana you live

there you might have a management role there but you don't have an office and all of your employees that you're paying are not U.S persons and they're outside of the US anyway and you're paying them as contractors so you wouldn't have Nexus in Indiana so in that case you could register that LLC in Wyoming to operate so each situation is different but basically the the easy way

to look at it is if you have an operational activity in the state where you live with employees in an office then you need to register in your home state if you don't have an operational activity with an office and employees in your home state then you're much more free to open it where you want okay I hope that makes sense makes total sense

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what is the best state to form an LLC this is always a really fun question so it depends on your personal situation I tell my non-us clients when I say non-us I'm a non-us Citizens or green card holders so they're not tax residents in the U.S for the most part from my non-us clients Wyoming is generally the best option now there are some exceptions to that rule

for example I have some European clients that are raising money for some big projects and they have investors giving them money oftentimes if you are going to have investors they're going to demand your company be registered in Delaware because Delaware has a different court system for business disputes called their Chancery Court system and investors really like Delaware because that court system makes dealing with disputes from really

fast and Delaware's of pro-business friendly State and so oftentimes if you're registering a company and let's say you're going to have some VCS let's say investing a million or two or three million dollars with you your investors are actually going to force you to register a company in Delaware anyway because for them it's beneficial to be in Delaware if you're not raising money from investors you probably

better off in Wyoming as a non-us person let me clarify that also for a non-us person I'm talking about a non-us person who's not going to have a company with a physical connection to the state where their company's registered like they're not opening an office or a warehouse or hiring employees there they're running it as a completely virtual company now if you are running your company us

or non-us it doesn't matter but if you're going to open a business in the U.S but you're going to have what we call Nexus or a physical connection to that jurisdiction I don't know the example always give this let's say a plumbing business in New Jersey then you really need to register the company in New Jersey where the company is going to have Nexus because you're going

to have employees you're going to have an office or a warehouse or something like that you're going to have to do payroll tax withholdings on your employees in that state so you need a state tax ID number which would be attached to your business registration and so in that case if you're going to have Nexus in the state you need to register in the state where your

business has Nexus now if you are a U.S person registering a company it depends on your desired outcome for example if you're a real estate investor and all you're doing is registering an LLC for example to own pieces of property again I would revert back to Wyoming for example your real set investor in Atlanta Georgia and you're buying investment properties in Georgia I would register them to

a Wyoming LLC even though you live in Georgia you can do that there's no problem with that the problem would be is if that LLC then had employees in the state of Georgia and then it would need to be registered in Georgia so generally especially for my tax consultation clients or my asset protection consultation client I would tell them keep the ownership of the asset separate from

the operational side of the business so I would say they had I don't know 20 rental houses I would register Wyoming llc's to own the properties and then separately I would register a Georgia LLC for the property management side of the business to separate the operational side from the owner ownership of the asset site so if but again if you are actively doing business connected to that

state like when the office or employees you really need to be registered in the state where you have that physical connection otherwise if you're an American completely virtual business and no employees maybe you have some 1099 contractors but no employees almost exclusively I would do it in Wyoming one other option is if you are adamant about privacy and you're using that LLC for privacy purposes this is

not necessarily for operational business but this is maybe I don't know you don't want to have your vehicles in your own name kind of thing or you want you don't want to have your name in public record for anything in that case I'll probably use a New Mexico LLC for that purpose in the state of New Mexico we can register an LLC and your name is nowhere

attached to it and there's not even an annual report filing you don't even have to pay an annual report fee every year there's no filing of anything back to the Secretary of State I jokingly say this but actually it's legitimately true if you wanted to register an LLC in New Mexico we could literally meet in a gas station and you could pay me with cash and a

brown paper bag and tell me your name was Minnie Mouse and it would be fine I would not literally need to know who you are it's a little bit ironic actually because a lot of people think I'm going to register an offshore company for privacy and you there's a whole lot more restrictions on registering an offshore company and a whole lot more due diligence required for registering

a company like let's say in an offshore jurisdiction like Anguilla for example we have a whole lot more requirements to register a company in Anguilla than I do it for a U.S company like in New Mexico which is ironic since a lot of people talk about how oh my gosh this offshore jurisdiction it's so shady because you can do it nobody knows who you are that's not

really true but in the US it's absolutely true like I could I'm serious like I could meet you in a gas station Park hot and you tell me your name is Minnie Mouse and I'm like okay Minnie Mouse it is you might have a problem open a bank account with that New Mexico LLC but as far as the ownership goes there'll be no problem with that we

do a lot of offshore structures as well though

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[music] While we're on the subject of creative things, I just thought of another one that we're doing we do for a lot of clients. There's a thing called a friendly lean. Have you ever heard of a friendly lean? No. Yeah. So, [snorts] this is a creative thing you can do with your LLC's. This is especially useful if you are a real estate investor. [snorts] So, let's say

for example, you have, let's say, a forplex in Atlanta. So, you create an LLC to buy your forplex in Atlanta. Let's say that forplex is, let's say, a half a million. And let's say you go get a mortgage on that property, put 20% down. So, you borrow $400,000 and you you put $100,000 of your cash in there. So, the asset value itself is 500. You get $100,000

in equity and a mortgage with Bank of America for $400,000. and you put that entity in, let's say, a Wyoming LLC. Now, you anticipate that property to go up in value. So, you want to protect your upside on that property in case you're ever sued and somebody tries to go after your equity in that property. I mean, there's all types of liabilities associated with property ownership. Somebody

in one of your forplex units kills somebody in the apartment and you get sued because it happened on your property. It's crazy, but that stuff happens. What you do is we create what's called a friendly lean. So now we we would register another LLC for you and then that LLC would file a lean against your property that is owned by the other LLC, the property in Georgia.

We would create a lean. Let's say we might create a million dollar lean against it. That's what we call a friendly lean. So we record that lean against your property in Georgia for a million dollars. And so now you have a $400,000 mortgage and then you have a million dollar second lean, like a second mortgage against your property. So let's say tomorrow now somebody sues you for

a million dollars and they force your property in foreclosure. What would happen is that property would get forced into foreclosure and then your first mortgage would get paid off. Let's say the property sold for a million dollars. So, your first mortgage would get paid off to Bank of America for 400,000 or whatever the remaining balance is. And then we have to satisfy the second lean before anybody

gets anything else. So, if we have a lean for a million against that property, then your other LLC over here that holds that million dollar lean against your property would get the additional $600,000. So if the property sold for a million, we paid mortgage one off for 400. And then we satisfy lean two with 600,000. We didn't satisfy it. Actually, we paid it, but that's all the

money. And so the lean goes away after you pay off the 600,000. And then whoever sued you for a million dollars doesn't get anything because there's no money left after lean one and lean two were paid. That's kind of an interesting strategy you can do. It's very good for real estate investors to protect any future upside in their property. Forgive me because I don't know a whole

lot about leans, but you don't need a reason for the lean. Yeah, you do. You need to have what you draft a loan document, right? A promisatory note and a loan document. Then you have to file the lean against the property. Okay. You do have to have a reason. But the other LLC, the second LLC, let's call that lender LLC. Lender LLC takes out a lean against

it. Look at it like this. It's kind of like getting a line of credit against your property. That's it. It's a lean for a million dollars against your property. So that is the reason lender LLC, I'm using air quotes, loaned you a million dollars against property one owned by property LLC. So you do have a reason. I mean it's just paperwork. It's all shuffling paperwork, but it's

there. So then in your example, basically the property owner still basically gets all their money back. Yeah. Even if the property gets foreclosed on and sold at auction, they get all their money. They pay off the mortgage, of course, but any of the excess funds just goes to their other LLC that they own. Super interesting. Yeah, that's a really good strategy for real estate investors to protect

any upside in their properties. Wow, that's crazy. Yeah, no one talks about that. No one does. That's insane. [music]

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hey folks bobby casey here and thanks for joining me today on our channel business anywhere uh and if you don't mind if you could please before you finish this video uh like like our page follow our page and share it with your friends if you don't mind thank you today we're going to be discussing real estate should i put my real estate investments into one or more

llcs and so the short answer to this is yes yes you should but there are some caveats to that and which state you should use and uh the right way to go about doing it and that sort of thing so let's talk about this briefly over the next couple of minutes should i put my real estate investments into one or more llcs first of all why would

you do it why would you want your real estate investments to be held in an llc first and foremost is asset protection if you have an incident at your property a slip and fall or some crazy thing you know you've got a tenant that decides to build a meth lab in your rental house's kitchen or something like that then you want to be protected personally protected from

the activity that arises from the uh asset or the business so you know you've got that crazy incident somebody gets hurt somebody gets killed on your property you want to control that environment you want to limit your liability to the property itself so in that case if somebody has some crazy an incident they sue they're going to sue the owner of the property the owner of the

property is an llc they sue the owner of the property the only thing available to that future potential creditor are the assets of that owner or that llc so that's the first and foremost thing you really need to protect your other assets from the activity that's associated with this particular property first and foremost second privacy you don't want the whole world knowing what your financial situation looks

like and so it's really easy to do a record search and find out who uh or or what properties you own if your name is john smith i can do a record search really easily and in a matter of an hour or two i can find out every property you own in a given area even if i go deep enough i can find this information nationally through

uh property record searches and so if you don't want the whole world knowing everything you own you want that veil of privacy you don't want these things in your own name so that's the second thing how do we go about doing it uh well i tell people if you have a bunch of really low value rental houses you know in a low cost of living area some

you know small town in kansas or something like that um let's say you've got 10 rental houses that are all worth 40 or 50 000 a piece yeah you don't you know from a cost standpoint and from a hassle standpoint you probably don't want to put um you know you don't want to put 10 you don't want to build or create 10 llc's to own 10 rental

houses that's just you know that's probably a bit overkill and you you already are going to have property insurance on each one so you've got some protection there but i wouldn't do one llc to own 10 properties i would do two or three or maybe four llc's there and to kind of separate your risk because what happens if you own everything under one umbrella let's say you

do on all 10 of these properties under one llc you're aggregating the risk across all 10 properties so if you have an incident on one property and you have uh somebody sue you for you know some injury or wrongful death and someone sues you in that one property you have exposed all 10 of your properties to you know this future potential creditor so you don't want to

aggregate that that risk across all all 10 of your properties but you know for cost reasons you probably don't want 10 llc's either but if you've got some high value properties let's say an apartment building you know a fourplex you know a half a million dollar vacation property or you know something like that i would absolutely use one llc per one property and then there is one

other thing we'll discuss this in another video but i'll give you kind of a little foreshadowing to it is if you have mortgages on your property you may not want to hold them in an llc so there is another option there we can discuss in a future you know a future episode so anyway thanks for joining me today i hope this information was helpful and like i

said please like the page follow us and share this with your friends thanks take care have a great day

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