LLC to start, then Series LLC

17 Replies

I'm just starting out with real estate investing in Illinois, and have been looking into the advantages of the Series LLC. At this point, I don't have any rental properties, but I am getting close to being at the point where I can get one. My plan is to buy one single family rental or multi family every year or two.

There are some very good discussions on this forum about the Series LLC, and if done right with the advice of a good attorney, I think that this is the route I want to go once I have acquired multiple properties.

My Question:

Since I will be starting out with only one property, would it make more sense to go with just an LLC for the first property, and then when I am in the position to buy a second property, convert it to a Series LLC with two cells?

I've heard it is possible to convert an LLC to a Series LLC, but how easy is this to do? Does this leave a "trail" that would compromise the Series LLC?

You can't "convert" an LLC to a Series LLC, at least not in Texas or Nevada, and I doubt you can do it anywhere else. Why? Because there is specific disclosure language that must be included in the formation filing notifying would be creditors and others that there could be Series involved that are legally separate from the original LLC.

Simply form the LLC as a Series LLC from the beginning. You don't have to form additional Series at the beginning or ever, for that matter, but you have the flexibility to do it as necessary.

Hattie is correct... Rules are the same in illinois.
Series are a great option--
Higher upfront cost but cheaper to form a "new" series cell after for $50 or $75 (sorry I can't remember)
Very easy to do on the Illinois Secretary of State website/paperwork online.

One thing all investors need to remember, which I believe was discussed on a BP podcast, is that ALL accounting must remain separate for each series cell and no funds
can be commingled. If this happens it's a attorney dream.
Keep all your financials separate and don't transfer monies between the series and you should be good.

I believe you can convert an Illinois LLC to an Illinois Series LLC by filing Articles of Amendment with the Secretary of State. However, it is not common and I have never done it. You may wish to call the S.O.S. LLC Division at 217-524-8008 to be sure.

Instead, I would recommend you just spend the extra $250 and create a series LLC from the start. As others mentioned, series do not need to be created until later, if ever. The yearly fee is the same for a LLC and the master series LLC. Good luck in your investing!

Welcome to BP. 

Both @Hattie Dizmond   and @Derek Martin are 100% correct. 

I have a series LLC as well. It cost me a little more than a simple llc at the time of formation, however in the long run, it has saved me bunch of money. You only have to pay like $50 extra for each additional series in Illinois.

Hope it helps.

James Syed, Real Estate Agent in IL (#471018522)
618-406-9775

Thanks for the advice everyone. I'm still trying to learn as much as I can before I start, and your replies were very helpful. It follows that a Series LLC from the very beginning is my best bet.

Joe, do you recall which podcast covered the Series LLC? It doesn't come up in the search, but I'd love to listen to it.

Hattie is correct... Rules are the same in illinois.
Series are a great option--
Higher upfront cost but cheaper to form a "new" series cell after for $50 or $75 (sorry I can't remember)
Very easy to do on the Illinois Secretary of State website/paperwork online.

One thing all investors need to remember, which I believe was discussed on a BP podcast, is that ALL accounting must remain separate for each series cell and no funds
can be commingled. If this happens it's a attorney dream.
Keep all your financials separate and don't transfer monies between the series and you should be good.

I wish I could remember . Let me poke around a bit

I am an Accounting for Property Management firm. I've been doing it for my whole career.

You don't have to really worry too much about transfer monies between entities. You just need to make sure to record and make sure to "pay" it back. This is why it's highly recommended to have an Accounting/Financial Property Management firm to help you in those areas. 

You do need to have separate bank accounts per LLC.

I know this is an older thread but I just went through this and wanted to add some information.

You can form a standard LLC in Illinois for $500 or form a Series LLC for $750.

You CAN later file articles of amendment to convert a standard LLC to one that is authorized to establish series, but the fee is $400 (as opposed to the $150 it normally costs to file articles of amendment).

Your annual fee with a series LLC is still $250, plus $50 for each individual series.

There are significant cost savings if you need multiple entities.

@Tanner Thoman thanks for your input.

@Joe Mueller ....@Simon W. @James Syed @Derek Martin r

If I have a Series LLC in Illinois which owns multiple properties under separate Series, can I buy a property in another state (Indiana, which does not allow Series LLC) and put it under another series?? In other words, is it okay for a Series LLC to own one property in Illinois (e.g Series IL LLC) and another property under another series in Indiana (e.g. Series Indiana LLC)?

Will appreciate your inputs.

thanks

one more thing I need to mention is some lenders do not allow series LLC. I had to cancel the series option at the time of the closing (for a fee of course ?$150).

Would people that had savinging mind spelling them out. What roadblocks did you hit w/ Series? Did the lender say why a series wasn't o.k?

Has anyone one done exotic transactions like tax free sales between series?

@James Syed @fadel a. ...thanks

good to know that some lenders do not allow Series LLC...

thanks!

I have a series LLC in Illinois. What reason did your lender give for not liking it?

That seems counter-intuitive that a bank would not like the Series designation - it should be protecting their asset (the property under mortgage until you pay it off) from any other properties you own that might be potentially involved in another lawsuit. Can you explain more about what exactly the bank didn't like about it @Fadel A.

@Rob M. you are not protecting the banks asset because the bank is the first lien holder, meaning they get their money first no matter what. You are just seperating your own assets that can be touched should a law suit arise. Only assets in the LLC would be able to be sued against.

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