Perhaps you are considering what entity will do the best job protecting your real estate assets. Look no further than the series limited liability company (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.
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 scalable 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.
Some of the benefits of the series LLC that investors love the most include the following:
Let’s look at the series LLC in action. This example will show both how the series 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!
My name is Scott Smith. In addition to being an attorney, I’m a real estate investor who can help you 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.
Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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