Series LLC - What are the costs?

[Stacy Gunn]

We are new investors and asset protection is important to us so we are looking to form LLCs for our rentals. We met with a lawyer recommending a series LLC which sounds great but they had a hefty price tag associated with formation when I know that the actual LLC fees are only around $300 and operating agreements are fairly standard to create. I am not a lawyer and absolutely want to use a professional to help but I also want to find out what is a reasonable cost for a lawyer to set up? I also need a registered agent service as we will be out of state. If you have had any experience with this, I'll take any and all advice. Thanks

[Costin I.]

@Stacy Gunn , what you are looking to buy is a form of insurance - protection against litigation. So, before the "reasonable cost for a lawyer" question, you should have the answers to "what is my risk threshold?", "do I need asset protection?", "how much I'm willing to pay for my peace of mind?", "have I done and doing everything else needed to protect my assets?", "how do I find/question a good lawyer?" questions. [For last one, read https://www.biggerpockets.com/forums/12/topics/717912-question-about-questions]. 

Here is a graphical diagram to help you on some of these questions and quest:

So, another perspective would be to apply the "Asspro rule of 2%" (© Costin 2018) - the cost of setting up and maintaining your asset protection should be less than 2% of equity you are trying to protect. Let's say, it costs you 1.5K to get your structures in place (holding LLC or Series-LLC, with or without land trusts, with or without separate operations LLC) and 0.5K per year (for maintaining the LLC properly, bookkeeping, lawyer and CPA, etc.) for a total of 2K. You should have 100K or more in equity (!) to protect before it makes sense to spend that money - compare that with how much you spend in annual insurance for the same property/equity (on the same FEAR principles, just in case your property might burn down).

Again, this is a simplified rule of thumb, as there is a lot more to the LLC question - when to do it, how to do it, current mortgage, proper transfer to preserve title insurance chain, DOS, future financing, management, distribution of properties per entity, insurance, partners, etc. - stuff barely touched in current thread.

There is no one-size-fits-all - the risk threshold is a subjective measure particular to each individual. And there is no absolute answer and unique tool/strategy in anything real estate. You need to learn how and when to use all the tools available to you (financing, insurance, management, etc.) and to understand how they fit together in your toolbox, as none will give you everything.