Business Management

The Traditional LLC vs. the Series LLC: Which Is Better for Real Estate Investors?

Expertise: Business Management, Personal Finance
82 Articles Written
LLC written in blue marker on a spiral notebook laying on desk with small potted plant and other desk decor

Most investors are familiar with a traditional LLC but not its more useful counterpart, the series LLC. A series LLC is a unique form of limited liability company that provides protection from liability across multiple individual “child” series within each main “parent” series LLC protected from liabilities arising from the other individual series. Each individual child series is treated as if it were its own LLC for liability purposes.

Want more articles like this?

Create an account today to get BiggerPocket's best blog articles delivered to your inbox

Sign up for free

Why Is a Series LLC Better Than a Traditional LLC?

Traditional LLCs are just fine, and they’re useful entities to be sure. However, they do have their limits. That’s why we are such big fans of the series LLC—there’s no denying that its features make it a much wiser choice for the savvy, forward-thinking investor. The series LLC—or (S)LLC—offers anonymity, lawsuit protection, compartmentalized liabilities, and it may reduce operating costs and streamline administration. Here are the details on some of our favorite features of this increasingly popular entity.

The (S)LLC Allows You to Own More Than One Property

A traditional LLC is a tried-and-true method for managing a single property. However, the series LLC model allows you to create a “child” company for each individual asset. This structure is limited only by the number of properties you choose to own. Maybe you only have one property right now, and the traditional LLC seems like it would do you just fine. We encourage you to think more long-term about your goals as an investor. Even if you’re 80 percent sure you’re going to be a one-and-done investor, why limit yourself when you can leave your options open at no extra cost? That leads directly into the next great feature of the (S)LLC.

Related: The Pros & Cons of Using a New LLC for Every Property Purchase

Infinite Scalability Lets You Grow Your Business Forever

With the series LLC, creating a new “child” LLC is simple. When you decide to add to your portfolio, all you do is generate a brand new LLC underneath the parent corporation. It takes about as much time as sending a Christmas card, and even better, you can do it from your laptop. The series is a private document that you create on your computer, sign, and store in your safe.

Compartmentalization Offers the Best Asset Protection Plan for Investors With More Than One Property

You’ve probably heard the old adage about not putting all of your eggs in one basket. The (S)LLC essentially allows you to give each “egg” (or property) its own basket. Oh yeah, and  those baskets aren’t your grandma’s wicker baskets. We’re talking about 100 percent solid steel boxes reinforced with concrete with a big-ass moat full of vicious alligators and flesh-eating piranhas swimming around the perimeter. That’s the level of security the structure provides.

Since each asset is isolated in its own series, should you ever be sued personally, your property will not be vulnerable to seizure. Assets are isolated for liability purposes, meaning lawsuits are often fruitless. The axiom that you can’t get blood from a stone is illustrated well here. Without anything to truly gain, most people aren’t going to try to sue you in the first place. Lawsuits are expensive. Who would want to pay their lawyer more than they could ever win? We’re sure there are some people who are extravagantly wealthy and so persuaded by pure spite that they might consider trying to come after you, but either we’ve lucked out and never met them—or the series LLC structure has kept them away from us and our clients.

Anonymity: So Much Easier With The (S)LLC

Anonymity is perhaps the most critical piece of your asset protection plan. Even if your assets are valuable, they are insulated in their own series (those steel boxes we mentioned above) so one has nothing to do with the other, and none have anything to do with you personally. We simply cannot say this enough to our clients or fellow investors: Anonymity stops lawsuits before they even start. Why? Nobody can successfully sue you or hold you liable for property that they cannot prove you own.

With these features, the series LLC is an excellent choice for real estate investors or anyone who needs a solid asset protection system. We recommend them a lot because the tool is as versatile as it is useful. We’ve seen it make and keep people very rich. Could the series LLC be the first big step you take in building your investment empire? Keep checking out our articles and other writing on the subject to learn more.

What do you think? Do you have experience with a series LLC?

Share your experience below!

Scott Royal Smith is an asset protection attorney and long-time real estate investor. His law firm, Royal Legal Solutions, helps thousands of real est...
Read more
    Ryan Stover from Los Angeles, CA
    Replied over 1 year ago
    I finally found what I needed! A Series LLC to house all of the other LLCs. I’ve been told to have just one LLC per property. I may try doubling up, two properties per LLC… Also, I am interested in applying for a business credit card, but I didn’t know which LLC to do this on, so I should do it on the Series LLC’s Business Name. I plan on filing in Nevada, hopefully California doesn’t mind as I am a resident in the Golden State. Thanks a bunch Mr. Smith, Ryan
    Scott Smith Attorney from Austin, TX
    Replied over 1 year ago
    You are very welcome! If you are investing out of California I would recommend looking into the Delaware Statutory Trust. Even if you form an LLC outside of California, the fact that you live in California is enough for them to hit you with the franchise tax. The Delaware Statutory Trust works much like the Series LLC in regards to allowing you to separate your assets into smaller “trusts” within the DST, and with it’s status as a trust you will not be charged the franchise tax. I will be uploading an article on the DST in the near future.
    Jeffrey Burke Long Rental Property Investor from Newport Beach, CA
    Replied over 1 year ago
    I think it might depend on how many properties one owns. I think the cost with LLC some this and that fees to file and every year $800 in cali i believe is quit pricey versus an umbrella policy?
    Scott Smith Attorney from Austin, TX
    Replied about 1 year ago
    Insurance is limited because it only protects you from one type of liability: accidents/negligence. Insurance doesn’t protect you from any part of the sale or acquisition of a property (e.x. Somebody wanting to sue for you backing out of a bad deal or accusing you of selling them a property with defects like unknown termite damage). Insurance also doesn’t protect you from misunderstandings, especially those made in writing and email. What happens in these misunderstandings is that something goes wrong either in the sale or after, and then they sue you for some statement you made that they “misunderstood”. That lawsuit is a claim for fraud, and that’s what fraud typically is...a misunderstanding and someone being “injured” and wanting to hold the other responsible for it. Insurance never protects you from these kinds of claims and they happen all the time. So in regards to asset protection it isn't "either/or," but "both/and." Insurance has great benefits, but does not completely protect you. The LLC will help cover any gaps left by insurance either excluding something from their policy or refusing to pay a claim through providing a stop-gap between the law suit and your other assets (personal and professional.) If you are concerned about the absurd costs in California, as you should be, I have you covered. There is an entity called the Delaware Statutory Trust that is not charged the additional franchise tax of the LLCs, but it will still provide you liability protection. You can read more about that entity in this article: https://www.biggerpockets.com/blog/california-real-estate-investors-delaware-statutory-trust
    Conner Pine
    Replied about 1 year ago
    Scott, great and well written article. There is one point though on which I'd like clarification. In your article, you state if I place my property into a Series LLC and I am sued personally that my property is not subject to seizure. This doesn't quite make sense to me. Notwithstanding the legal fiction of corporate separateness, I would still own the membership interests of the Series LLC which would own the properties in this hypothetical. So, if I were sued in my personal capacity, wouldn't my LLC interests be subject to seizure? And since whoever owns/possesses the LLC interests would own the entity which owns the property, technically the LLC member would then own the properties, and thus if I were sued in my individual capacity, my properties would still be subject to seizure. Perhaps you could provide some clarity on that point.
    Scott Smith Attorney from Austin, TX
    Replied about 1 year ago
    This would be when a charging order comes into the picture. Let's look at a hypothetical situation: I have my properties properly structured inside of an LLC. And out of the blue I got into a car wreck which results in a judgement against me because it exceeded the limits of liability of my auto policy. Now they have tried to record that judgement against my LLC. Can they take it? The answer is no. This is part of the protections that an LLC gives you. It allows you to be able to know that your assets are gonna be protected from the personal actions that you take in your day to day. You’ll know the exact laws that’ll happen inside of your particular state. Because it’ll be under the heading of what’s called a charging order. In most states, the way it works is that they can’t take your membership interest in the LLC, they can’t take over a management function, they can’t force you to sell the assets of your LLC. What they can do is put a lien against your LLC. So that way, if there’s any distributions from that LLC to you that it goes to your creditors. There’s ways around this if you ever end up in that situation. One of the ways that we would think to do that, is by selling your interest in the LLC to another party. But you always want to keep that in mind with what’s gonna happen in your particular state. With what’s known as the charging order. Look it up, make sure you know those laws whenever you’re setting up your LLC to know exactly what the limits are of your liability there before you end up setting up your structure.
    Lee Johnson Rental Property Investor from Sterling, VA
    Replied about 1 year ago
    Great article and many thanks for sharing. I'm not an attorney by far and just wanted to know if the Series LLC has been tested in the courts. I would hate being the first.
    Scott Smith Attorney from Austin, TX
    Replied about 1 year ago
    There is a misconception that the Series LLC is a new entity. It is not. It was first created in 1996 in Delaware, over two decades ago. While the Traditional LLC is more established, it is not much “older.” The Traditional LLC first became available in Wyoming in 1977, but most other states did not follow suit until the 1990s. The next state was Delaware, which enacted LLC legislation in 1995, followed by California in 1994/5. It was not until 1996 that all states had an LLC option. The same year, the Series LLC was statutorily created. So it’s interesting how people quickly fall in love with the Traditional LLC thinking it’s been around forever. But the reality is that after the creation of the LLC in most states, the Series LLC immediately came into the game. Just one year after California codified the traditional LLC. Series LLCs have been used for over two decades and continue to grow in their popularity and use because of their functionality and liability protection - so no fear, you would not be the first!
    Ben Richards Rental Property Investor from Austin, TX
    Replied about 1 year ago
    Great article, I was not aware of this type of LLC. I'm a newbie investor in Austin and I need to connect with an attorney that understands the needs of investors. Let's connect Scott!
    Scott Smith Attorney from Austin, TX
    Replied about 1 year ago
    Sounds good! Sent you a colleague request.
    Corey Pogue
    Replied about 1 year ago
    Scott, to clarify (I've read most of the comments and responses), the key to success with these is the structuring so that the Series is a pass thru. I assume that means that they are single member LLCs and therefore disregarded in order to show up on a Schedule E of a personal tax return. I live in Missouri which also has the series LLC entity available.
    Scott Smith Attorney from Austin, TX
    Replied about 1 year ago
    It really does depend on what your investments look like. I work with many investors who have some of their child series set up as pass-through, while others they may conduct as a joint-venture child series or even have taxed as an S Corp. The Series LLC is flexible, as long as you file it correctly to house these functions. The initial setup can dramatically impact how the Series LLC can function moving forward.
    Soh Tanaka Property Manager from Grayslake, IL
    Replied about 1 year ago
    Two things to think about. Since different series is a different company, you have to have a different books, debit cards, credit cards and check books. This gets too much very quickly, if you try to have one series LLC per property. Another thing is, at least in IL, you can easily see what the other series are, so there's really no anonymity.
    Scott Smith Attorney from Austin, TX
    Replied about 1 year ago
    While the concept is correct, you don't actually need to have different accounts for each child series. Many Series LLCs are operated under a single bank account and EIN. The important factor is that you have the burden of proof in court that these entities function independently, but with proper earmarking on today's software that can be accomplished through the same bank account. It is arguably easier to track funds when you aren't juggling 8 different checking accounts, but instead everything goes through a single account and you get in the habit of earmarking. Many of the situations that people end up comingling funds is because they grab the wrong card or they accidentally transfer funds from the wrong account. If it is all in the same bank account and the judge wants to review your financial documents it will be easier to grab a single statement than to compile documents from multiple LLC accounts. It is common to believe you need multiple accounts to run a Series LLC, and some do for special circumstances (such as taxing one child series as an S Corp,) but the actual requirement is to prove they can run independently. Most Series LLC do not provide anonymity by default, but you can introduce anonymity through the use of Land and Agent Trusts. (https://www.biggerpockets.com/blog/anonymous-trusts) The Land Trust can be implemented at the property level to remove your name from public record on that individual property, and the Agent Trust can accomplish the same function at the level of the LLC. It takes some more effort, but the Land Trusts are especially useful since they can also assist with obtaining better financing and roll into any future estate planning easily.
    Gulliver R. Rental Property Investor from Los Angeles, CA
    Replied about 1 year ago
    Scott, thank you for this article! Question for you: let’s say a brand new investor has 1 rental property in a traditional LLC and he’s looking to get a second rental property with a partner investor (50/50 split arrangement), do you recommend they get that rental property under a traditional LLC or Series LLC?
    Scott Smith Attorney from Austin, TX
    Replied about 1 year ago
    Great question! It depends on what you are trying to accomplish. If you just have the two deals (one personal, one joint,) it may be simpler to just keep them in their own LLCs. However, if you intend on growing your operation it might be a good idea to transition into a Series LLC. The Series LLC can house both your individual deals and joint ventures in "child" series, so you don't have to run around forming new LLCs to remain protected in all these different ventures. The Series LLC will generally cost you more to establish; however, you will end up saving money on annual filing fees and don't have to pay for each additional LLC from that point on. This article explains asset protection from a birds-eye view, so you can get a feel for the strategy involved: https://www.biggerpockets.com/blog/pillars-asset-protection-real-estate-investors
    Account Closed
    Replied about 1 year ago
    Is a Series LLC the same as a Holding Company (LLC)?
    Scott Smith Attorney from Austin, TX
    Replied about 1 year ago
    An operations company is actually just a Traditional LLC that is only used for the use of running an investor's operations, but it doesn't actually own any property. A Series LLC is only able to be formed in a few states (though it can operate in all 50,) and is best used side-by-side with an operations Traditional LLC. You would create the Series LLC to hold each asset in a different "child" series to separate the liability of one property from another. Then you would use the operations Traditional LLC to run the highest liability actions of your investments (paying contractors, collecting rent, signing leases, etc.) but would not give it any properties. In this way the Traditional LLC (which only holds some liquid assets) is the most likely to be sued, but is more expendable than any of your properties. This article explains it in a bit more detail: https://www.biggerpockets.com/blog/pillars-asset-protection-real-estate-investors
    Howard Sklar Investor from Aurora, Colorado
    Replied about 1 year ago
    Scott: Much thanks for the info....really, super valuable as R.E. investors work way too hard to not be protecting the "fruits of our labor" in the best way possible!! Some Questions: 1) Is there a risk of triggering a due on sale clause (from existing mortgages in place) with changing the current ownership structure to incorporate a Series LLC? 2) Is there much added headache in selling a property held in an anonomous land trust within a series LLC structure? RSVP & thanks in Advance! Howard
    Scott Smith Attorney from Austin, TX
    Replied about 1 year ago
    Hey Howard!, By using the Anonymous Land Trust you are actually avoiding the Due on Sale Clause entirely. The Land Trust is actually considered an Inter Vivos Trust [estate planning tool,] and is excluded from the DOS clause thanks to the St Germain Act. In regards to the sale, since you are the Grantor of the trust it is very easy to handle during a sale. The LLC is not technically the owner of the property, it is only a beneficiary, and so you are primarily working with the Land Trust during a sale - not the Series LLC. Thanks for the question!
    Alan DeRossett Investor from Thousand Oaks, CA
    Replied about 1 year ago
    good article Scott, I plan to use a Series LLC but also wonder if I'll be allowed to transfer inherited property that' is currently in an irrevocable living trust without having a new property tax increase.
    William Carpenter from Wichita
    Replied 11 months ago
    So my understanding has always been that an LLC is based on state law, and the state that you operate in needs to allow for a series in order to do this as well. Is this correct? Meaning if I have a series and invest in a state that does not allow for a series, can I still use it or do I need to organize a new entity, or use some other one I have?
    Jason Hulin
    Replied 10 months ago
    Scott, hello from DFW! Thank you for all of your efforts here; your patience and zeal are commendable to say the least. The only item I am unclear on is whether you should have the parent/master llc listed as the member of the child/sub-series llc or whether it makes more sense from a liability standpoint to have myself listed as the member just as it is in the parent/master llc? Any insight you can share would be appreciated. Thanks!
    Marie Sepich
    Replied 9 months ago
    Beware! I ran into a pitfall after forming my Series LLC and that is that many banks will NOT OPEN BUSINESS ACCOUNTS for series LLCs. The reason for this was not given to me, however, even banks like Wells Fargo that USED TO DO IT stopped servicing these types of accounts. Now I am in the pickle of having to convert it back to a normal LLC, and have had to put all my other affairs on hold, including filing in the state where the property is, and putting the property (currrently under my name) in the name of the LLC.
    Clint Forsythe Investor from Belleville, Illinois
    Replied 6 months ago
    Scott, I am in Illinois and am considering whether i should set up a series or a standard LLC. My lawyer here in Illinois thinks the series LLC was all the craze several years ago but its not adised by him anymore. Do you know much about Illinois? I dont care so much about anonymity as i do a protection and simplicity without all the separate filing fees, etc. Can you give any insight into Illinois? It may not be much different as far as fees or protection in this state is why my lawyer feels the way he does about it.
    Clint Forsythe Investor from Belleville, Illinois
    Replied 6 months ago
    Im wanting to start a syndication in the multi-family space and not sure if i should do a standard or series. Id like to keep all investing under a marketable name such as what i have. Cardone Capital is im guessing probably a series llc? then all of his individual projects fall under that company name, for instance?
    Jason Go
    Replied 26 days ago
    Hello Scott, Thanks for posting up the details regarding Series LLC. Awesome info! Do you know of any good tax accountant that deals with Series LLC taxation? I am trying to figure if I am better off putting my properties under a Series LLC, traditional LLC or my personal name. After once I work out the figures with the tax accountant, I will have to work out which property ownership structure I should choose in terms of taxation or asset protection benefit and which one is more important to me. Currently I hold two properties in Indiana and one in Texas. Appreciate any feedback. Thank you in advance.