Many investors ask the real estate investing question, where do I set up an LLC. There is always much controversy as to WHERE is best to set up entity structures. To give the best answer, of course, requires deeper probing into your particular real estate investing situation.
Many people find Nevada, Delaware and Wyoming, which offer cost affective advantages, are good states to set up structure, BUT they all have their advantages and disadvantages.
Ultimately the state you have acquired the property in will heavily control the tax liability you may have. Owning an LLC in another location may prove to be more time consuming and more costly because the state in which you own an LLC will have to register with that state, file in that state and pay taxes in that state. So if you register an LLC in another state you may be doing double duty.
To best answer the question of where should you set up an entity?, you need to look to the bigger vision:
What is your long term real estate investing strategy? Many people find it beneficial to set up a Parent LLC, Parent Trusts or maybe an S Corp that umbrellas over a number of smaller LLCs or trusts, etc. As an example, if you plan on investing in multiple states and holding many properties you may wish to separate your liabilities into smaller segments. Consider for a moment you have 10 properties in 5 different states and something goes wrong where you get a lawsuit. You will not want all your assets exposed to that lawsuit so multiple LLCs, or trusts, etc. will help prevent this.
O.k. so we are back to the original question, where do I set up an LLC?
I always recommend proper entity set up. It is imperative to do this part correctly to avoid double taxation on the US end and the (Country of your origin) if you are investing from overseas. There is no umbrella answer for this, as you first need to consider all your finances and your investment strategies. Then you will want to consult with a tax professional to uncover your best situation.
CAUTION, not all tax professionals are created equal! A good tax professional should be asking you as many questions as you ask them. It is imperative to get your long term investment plans uncovered and then create the best and most affective entity for you. I grew up always being told “begin as you plan to proceed”. Having your long term goals in check when setting up entity structure can save you thousands of dollars and save you lots of headaches. So talk to your tax strategist and ask them a lot of questions. They should ask you several in return and you can then be comforted in knowing you have begun the process of a successful real estate investment.
See also the blog on: “To Succeed You Must Have Your Real Estate Power Team in Place”!
If you are an overseas real estate investor, make sure to get a copy of our free e-book, How To Buy USA Real Estate.