Independent of your choice of business entity, CA will impose a tax on CA source income, which includes income from real estate rented in CA even by a non-resident owner. CO will likely (I don't know for sure) impose tax on its residents on their wordwide income, which would include CA rental income. Many states would give some type of credit for tax paid to another state in this circumstance. That usually eliminates (or at least reduces) double taxation. I don't know how CO deals with that.
A LLC (other other business entity) is a "domestic" LLC in the state in which it is created/registered with the secretary of state. States allow creation of business entities and set forth the procedures and fees in their statutes.
A entity from one state "doing business" in a second state much register as a "foreign" entity in that second state, paying whatever fees and filing whatever forms that state requires.
"Doing business" in a state can be a difficult facts and circumstance analysis. However, having a continuing physical presence (e.g. a rental property or a store) or employees in a state is very likely to be considered doing business in that state. If so that means that you don't gain much by registering in your home state and the other state, IMHO. You might as well just register in the other state.
But this is a question you should ask a business entity attorney in the state in question.
Many people would skip creating the LLC and just by more insurance for liability protection. But again that is a question for your own professional counsel. If the property is small with modest revenue the cost of the entity (state fees, tax prep, etc.) may be prohibitive. On the other hand if the property is large (an apartment building not just a house) with significant revenue, it would make more sense.
For background you could start with these articles as well as the secretary of state corporations divisions for the states involved.
https://www.wolterskluwer.com/en/expert-insights/why-do-states-make-companies-register-to-do-busines...
https://www.wolterskluwer.com/en/expert-insights/what-constitutes-doing-business-in-another-state-fi...
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