Series LLC: Understanding the How, Why, & The Basics | Asset Protection for Real Estate Investors : Royal Legal Solutions

Series LLC: Understanding the How, Why, & The Basics

Perhaps you are considering what entity will do the best job protecting your real estate assets. Look no further than the Series LLC. The Series LLC for real estate investors offers a host of benefits that Corporations and other types of entities do not. Read on to learn more about how Series LLCs are set up, the basics of how they work, the  benefits of the Series LLC for real estate investors, and more below.

How The Series LLC Works

The Series LLC is a unique kind of limited liability company that allows you to grow your business indefinitely at no additional cost. The entity is able to scale up indefinitely thanks to a parent-child structure. The Series LLC makes use of one “parent” entity. Beneath that parent entity are “child” entities, which function like mini-LLCs.

This infinitely scaleable design makes it possible to create as many Series as you have assets. Creating new Series is a simple process you can complete at home, without having to restart the LLC formation process. Moreover, each Series receives complete liability protections while you avoid the cost of creating an entirely new company. Similarly, a properly formed Series LLC may only require a single bank account. For these reasons, investors get the same protections as they would with multiple LLCs without the impractical and costly drawbacks.

Why The Series LLC is an Excellent Entity for Real Estate Investors

Some of the benefits of the Series LLC that investors love the most include the following:

  • Ability to grow indefinitely. Incorporating new assets into the Series LLC structure is easy.
  • Separation of assets. With one asset per child series, even if a Series is sued successfully, it will not affect your other assets. We tend to recommend that investors hold only one asset per LLC. While this could get very costly with Traditional LLCs, executing this method with a Series LLC is quick and simple.
  • Simple bookkeeping. The Series LLC generally allows you to continue using the same bookkeeping measures you likely already have in place. Managing multiple Series can be done easily with traditional methods, even those as simple as an Excel spreadsheet.
  • Tax treatment flexibility. When you use a Series LLC, you have your choice of how Series entities are taxed. Perhaps one of your deals will work best taxed as an S-Corporation, while the remainder work better with pass-through treatment. As long as you have your assets separated, this type of arrangement is possible. You can choose the tax treatment that makes the most sense for your deal.
  • Ability to pair with Anonymous Land Trusts for greater anonymity. Learn more about the power of the Series LLC and Anonymous Trust combo.
  • Available to investors in every state. You need not have a local Series LLC option to take advantage of the Series LLC.
  • Ability to pair with a shell company or use alone. See the example in the next section for more information.

The Basics of Using Your Series LLC For Real Estate Investments

Let’s look at an example of the Series LLC in action. This example will show both how the LLC is used in normal practice and how it prevents lawsuits.

Sam is a real estate investor who mainly uses buy-and-holds. He keeps each of his four rental properties in Series A-D of his existing Texas Series LLC. On the advice of his lawyer, Sam uses his Series LLC solely to hold assets, while he manages his properties and collects rents with a Traditional LLC shell company. One day his realtor calls about a promising multi-family unit. After reviewing the numbers, Sam agrees that it is a good deal. He closes on the property and creates a Series document on his computer, being sure to collect the proper signatures and make a copy for his lawyer. The new property becomes Series E of Sam’s existing Series LLC.

Now let’s imagine a problem with Sam’s new property. After a rainy and humid month, the wood begins rotting beneath an exterior staircase. The structure gives out just as Sam’s tenant is standing on the staircase. The tenant is badly hurt and threatens to sue. First, the Series LLC and Shell Corporation structure removes Sam of personal liability. Even if suit is successful, the very most he can collect upon judgment is the property in Series E. Sam’s original four properties in Series A-D are safe

Get Help With Your Series LLC From Royal Legal Solutions

With the legal professionals at Royal Legal Solutions by your side, you can set up a no-hassle Series LLC entity that will offer you the strongest protection possible. Contact us to ask any additional questions you may have or schedule your personalized consultation today.

Discuss The Legal Safety Of Your Real Estate Investment Portfolio With Our Team? Give Our REI Legal Team A Call Now!512-757-3994