Questions about Series LLCs

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Questions about Series LLCs

Sonya C.
Member since 2023 · 2 posts · 6 votes

Hi All,

I'm new to bigger pockets and would like to start investing in out-of-state real estate (buy and hold, LTR). I've been reading some posts here about setting up individual LLCs for each property for asset protection, and saw that some state allow Series LLC but got quite confused with the various posts.

I currently live in Phoenix AZ, and plan to invest in out-of-state properties. AZ does not seem to recognize Series LLC, so I'm wondering if I could set up a Series LLC in either WY or TX, then use it to purchase properties in Ohio or Alabama?

Do I also need a "operating series LLC" set up in WY/TX, and in this case do I need separate bank accounts for each series? Do I also need to create a LLC in the state that the properties are purchased (OH/AL)?

Thank you!

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Chris SeveneyBusiness Member
Moderator
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
2y

@Sonya C.

This is an overkill. You do not need a LLC for every property unless they are large multifamily assets in different locations

For example worked with a company that had 5 buildings and 1300 units under one LLC.

Having one asset per LLC will drive you and your accountant insane and when you realize they charge like $1000 min for LLC returns and you have 5 LLCs that the $5k tax will eats up 1/2 your cash flow you will be like oh boy…

7e investments53 Reviews
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  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    2y

    @Sonya C.

    This is an overkill. You do not need a LLC for every property unless they are large multifamily assets in different locations

    For example worked with a company that had 5 buildings and 1300 units under one LLC.

    Having one asset per LLC will drive you and your accountant insane and when you realize they charge like $1000 min for LLC returns and you have 5 LLCs that the $5k tax will eats up 1/2 your cash flow you will be like oh boy…

    7e investments53 Reviews
    WebsiteView Page
    5Reply
  • Bryan HartlenPro Member
    Investor · Phoenix, AZ · Member since 2018 · 317 posts · 159 votes
    2y

    Hi Sonya. To answer two of your questions:  

    - You can register your LLC(s) in one state and invest in another, but how you do this will change depending upon where and what your investments are. As an example, I live in Phoenix, my LLC's are registered in AZ and I invest out of state (including in AL). In AL, I have to register my AZ LLC with the AL state (and have to pay AL state taxes).

    - as a practice its best to have separate bank accounts for your LLC(s). Assuming your LLCs are a sole proprietorship, the accounts should also be in the name of the LLC not your personal name.

    As others have said, a series LLC is most likely overkill at this stage of the game. Think of each LLC like a compound that separates your liability risk. If you have $4M in assets all under the same LLC then a liability risk from one property could expose you to up to $4M worth. If instead you put 40 $100k assets in their own LLC then the risk for each asset is limited to $100k. But the effort and cost to maintain 40 LLC's would outweigh the benefit of a low probability risk. (Note there are instances where the above generalization doesn't hold and an attorney is best to explain this to you)

    There are costs to create each LLC (even if it's a series) and you will need to prepare and file taxes for each LLC. If you are at the stage, or get to the stage, where it makes sense to split your assets across multiple LLCs there are options other than series LLCs which may meet your needs that are simpler and more cost effective (eg create a second LLC).

    2Reply
  • Timothy BorgPro Member
    Member since 2018 · 85 posts · 24 votes
    2y

    There was a podcast episode within the last 6 months all about legal protections that was pretty good. I'm sorry I don't remember the number.

    0Reply
  • Sean O'KeefePro Member
    CPA | Accepting new clients | 50 States · Member since 2022 · 1k+ posts · 871 votes
    2y

    @Sonya C.if you have an LLC and own investment properties (operate) outside of the incorporated state then you may need to file a LLC tax return in each of those States even if the LLC is a Single Member LLC and disregarded for Federal tax purposes.

    [email protected]628-241-0888
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  • Jackie Linne
    Member since 2023 · 25 posts · 13 votes
    2y
    Quote from @Sonya C.:

    Hi All,

    I'm new to bigger pockets and would like to start investing in out-of-state real estate (buy and hold, LTR). I've been reading some posts here about setting up individual LLCs for each property for asset protection, and saw that some state allow Series LLC but got quite confused with the various posts.

    I currently live in Phoenix AZ, and plan to invest in out-of-state properties. AZ does not seem to recognize Series LLC, so I'm wondering if I could set up a Series LLC in either WY or TX, then use it to purchase properties in Ohio or Alabama?

    Do I also need a "operating series LLC" set up in WY/TX, and in this case do I need separate bank accounts for each series? Do I also need to create a LLC in the state that the properties are purchased (OH/AL)?

    Thank you!

    Hi Sonya. I'm also new to the Series LLC, and keep coming across that most folks are not familiar with this format because it's not offered in all states, only about 16 states offer this format.

    I have a Series LLC in Ohio, and at one point started one in Alabama. Both of these states allow for Series LLCs and therefore you wouldn't need to create an out of state one. You just do it directly with the state you want to purchase your investment property.

    As for the bank accounts, I'm yet to decide if I need to create a separate bank account for each series, and I'm leaning towards doing so because it will provide separate asset protection.

    From a tax planning standpoint, I'm still researching the best set-up, but it appears that separate EIN for each series is the way to go for liability protection as well. 

    1Reply
  • Greg ParkerBusiness Member
    Realtor, Contractor, Property Manager · Montgomery AL and Kowaliga, AL · Member since 2017 · 670 posts · 536 votes
    2y

    I asked an attorney years ago, how many properties should I have in one LLC. He asked me, "how many can you afford to loose in a frivilous lawsuit"? If you don't mind losing 10 properties, put 10 in one LLC.

    [email protected]
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  • Ben Stout
    Real Estate Investor · Pensacola, FL · Member since 2012 · 136 posts · 83 votes
    2y
    Quote from @Greg Parker:

    I asked an attorney years ago, how many properties should I have in one LLC. He asked me, "how many can you afford to loose in a frivilous lawsuit"? If you don't mind losing 10 properties, put 10 in one LLC.


     As much as I hate all the extra fees and compliance, I happily pay it each year. If you've ever had a claim denied by an insurance company (and you will if you do this long enough at scale), you appreciate every layer of protection you can get... and don't want to rely only on your insurance to help when your net worth is at stake. 

    1Reply
  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    2y

    Texas law concerning series LLC specifies that separate records and bank accounts are NOT required for each series for the separation of each series liability to be recognized in court. IMO this makes Texas the preferred choice for series LLC, although the (over rated) non publishing of organizational information in Wyoming and Nevada will have others disagree.

    The fact that with a Texas series LLC you can file ONE tax return for every sub LLC in the series combined, and operate out of ONE bank account, eliminates almost all of the "hassle" of utilizing a series LLC vs one regular LLC into which you place many properties.

    Btw, this is not just theory; we now are on the 75th series of our LLC, which we started 6 years ago. And, we were able to do this with ONE Reg D filing (with updates every 3 years).

    So, the question really is does the NEW investor, without (assumably) a large net worth or large investment NEED to utilize a series LLC or can he just throw all his properties (2?, 3? ) into one LLC.

    The answer is it depends. How many properties are we talking about? How much EQUITY does he have in each one? How risky are the property types, locations, etc? (A SFR with a pool is a LOT more risky for lawsuits than remote raw land). And how long is he intending to hold the properties? Even during a 5 year holding period a properties value can double increasing equity substantially. Bottom line is this: with Texas LLC (Texas Sec of State provides an on line FILL IN the blanks form ) it cost $350 to form the series LLC, there are NO annual fees, and only one "information report" (single 1/2 page verifying agent, manager and address) to file every year. How can you afford NOT TO utilize this asset protection device? Btw, waiting until; you "need it" because an incident of liability has occurred is usually too late to do any good (statute of frauds).

    As for the fans of the privacy offered by Wyoming LLC, here's the best of both worlds. Have your Wyoming LLC be the organizer and managing member of your Texas series LLC. Now you've got maximum LLC liability coverage along with Wyoming LLC privacy.
    Many experienced investors advise that it’s better to spend time (for the rookie) trying to do deals than worrying about asset protection.  But with steps relatively simple for what amounts to a LOT of protection, why not set up a plan from the beginning?  

    Private Mortgage Financing Partners, LLC
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