Advice needed from anyone who uses series llc

4 Replies

After talking to a lawyer, we are pretty sure we want to set up a Texas "series" llc to hold the rental properties and another LLC to manage the rental properties that we have but there are some issues that boggle my mind about it, so help from anyone who is actually managing their properties this way would really be appreciated.

My questions are: 1. Do you maintain a separate bank account for each property in the series LLC? 2. Do you pay a fee to the managing LLC for each property it manages? 3. How do you take distributions? From the holding llc or the managing LLC? Thanks in advance on a very confusing subject!

Originally posted by @June F. :

After talking to a lawyer, we are pretty sure we want to set up a Texas "series" llc to hold the rental properties and another LLC to manage the rental properties that we have but there are some issues that boggle my mind about it, so help from anyone who is actually managing their properties this way would really be appreciated.

My questions are: 1. Do you maintain a separate bank account for each property in the series LLC? 2. Do you pay a fee to the managing LLC for each property it manages? 3. How do you take distributions? From the holding llc or the managing LLC? Thanks in advance on a very confusing subject!

Be careful as some states required your to be licensed to manage properties held by another entity or to run a property management company. You may want to consider setting up an account for each property for the tenants to pay into. If you have A TON of property that can be a lot to manage so you may use an operating account that collects. Pay everything from t here into the master account and then take your distributions from there. Are these held personally or with a partner/spouse? TX is a community property state so if you live there you will not default to a partnership with your spouse; however, it may be something to consider in order to mitigate 1. an Audit and 2. more separation from the LLC.

I create hundreds of series LLC for clients all over the country and use them for my own investing. Here are some simple answers:

1. You can use one bank account for all series. Your bookkeeping should be kept separate, however. Think of it as an escrow account for multiple clients. It's the bookkeeping that's more important than how many bank accounts.

2.Your agreement between the series LLC and the property management LLC should be arm's length and reasonable market terms. That is, put it in writing and have the PM company charge some fee for management. Run them like true separate entities.

3. You take distributions out of any LLC by simply transferring money out of the account. Remember that only the members get distributions and must take them according to percentage interest. You may pay yourself a salary on the PM LLC. Go over this question with your accountant to maximize tax savings--as that depends on a number of things.

You should really have a good attorney and good CPA on your team. The series LLC is a great tool. But does come with some particulars, like titling, contracting and bookkeeping. Those have to be done correctly or you'll lose the separation of liability that the series provides. But once you get it down, it's easy. I often find that most investors that create series LLC because they've been sold on it, don't use it correctly. I provide education to my clients so they know what they're doing.

Jeff

Thanks for the information. Yes, I had wondered about the brokers license being required but the lawyer said it wasn't, and also the Texas Real Estate Commission person on the phone said it was fine as long as the owner and property manager are the same. So even though it would be different LLCs, maybe because my husband and I would be the legal owners of both LLC's, then it's ok. But that's a good point and hopefully the information from TREC was accurate.   As far as bank accounts, we were going to set up a property management llc, and the tenants would pay rent into that. Then the rents would be paid by the property management company to the llc that owns the rental property. And yes, since Tx is a community property state, the LLC's would be 'disregarded entities'... This is one of those things that the more research I do, the more questions and issues come up. But it does seem to be fairly decent asset protection and also a good estate planning device. 

Originally posted by @Steven Hamilton II :

Be careful as some states required your to be licensed to manage properties held by another entity or to run a property management company. You may want to consider setting up an account for each property for the tenants to pay into. If you have A TON of property that can be a lot to manage so you may use an operating account that collects. Pay everything from t here into the master account and then take your distributions from there. Are these held personally or with a partner/spouse? TX is a community property state so if you live there you will not default to a partnership with your spouse; however, it may be something to consider in order to mitigate 1. an Audit and 2. more separation from the LLC.

Thank you!! This helps me so much!! So you think they are a good idea then? That is reassuring! It does seem complicated and more questions pop up as we research this but it seems like most of the questions are answered now!  It is for sure that everything has to be done properly and my bookkeeping abilities are going to have to improve. Do you recommend any book or anything in particular for training on exactly how to do all the particulars?



Originally posted by Jeffrey Breglio:

I create hundreds of series LLC for clients all over the country and use them for my own investing. Here are some simple answers:

1. You can use one bank account for all series. Your bookkeeping should be kept separate, however. Think of it as an escrow account for multiple clients. It's the bookkeeping that's more important than how many bank accounts.

2.Your agreement between the series LLC and the property management LLC should be arm's length and reasonable market terms. That is, put it in writing and have the PM company charge some fee for management. Run them like true separate entities.

3. You take distributions out of any LLC by simply transferring money out of the account. Remember that only the members get distributions and must take them according to percentage interest. You may pay yourself a salary on the PM LLC. Go over this question with your accountant to maximize tax savings--as that depends on a number of things.

You should really have a good attorney and good CPA on your team. The series LLC is a great tool. But does come with some particulars, like titling, contracting and bookkeeping. Those have to be done correctly or you'll lose the separation of liability that the series provides. But once you get it down, it's easy. I often find that most investors that create series LLC because they've been sold on it, don't use it correctly. I provide education to my clients so they know what they're doing.

Jeff