Does anyone use a Series LLC format?

Question

I’m looking into the best way to structure multiple LLCs for buy and hold properties and stumbled upon the series LLC format.  Does anyone have experience with a SLLC?

Scott Smith · Answer

• Originally posted by @Andrew Turella:

As I fall deeper into the rabbit hole...

Hey Scott,

With a series llc formed in Texas (or any other state), do you still have to register as a foreign entity in every state where you want to buy property?  And what if none of those states (not even Texas) is where you live, is that a big problem?

-Andy

Hey Andy, great questions!

• Foreign entity fees: If you don't implement any other strategy, than you would need to pay the additional  fees involved with foreign filing regarding the entity. The best strategy I have seen to use in order to avoid those fees is to purchase the property and place it into a land trust, assigning the LLC (traditional or series) as the beneficiary. This will still grant you the liability protection of the LLC, but the Land Trust is the entity "doing business" within the state, so you will not need to pay the foreign filing fees. The Land Trust can also be used to implement additional privacy into your ownership structure and makes estate planning in the future less of a hassle.
• Where you live: This is often considered where you are "doing business" from. So if you lived in California, a state that charges an annual minimum of $800 in franchise taxes per LLC or [child] series, and you are attempting to create an LLC elsewhere to avoid that - not going to work. The rule of thumb is to form and LLC in a state with the strongest protection and lowest costs, which the Land Trust allows a lot of flexibility by enabling investors bypass the foreign filing fees. But each investor's situation is unique, so the real answer on this is "it depends."
• Operating a Series LLC: You actually get a single EIN and don't even need a bank account for a Series LLC. Or you can run it under a single bank account. Or you can have a bank account for each child series within it. It comes down to what your portfolio looks like and what needs you have. It is a very flexible entity and can be streamlined to make an investor's life much more straightforward in conjunction with some of the newer bookkeeping software available to investors. The biggest limitation I see in the Series LLC after creating them over the last few years is that you will want to keep your buy-and-holds in their own series LLC and the fox-and-flips in another Series LLC based on taxes - but this just depends on your portfolio. Main point: it's more flexible than people think.

Scott Smith · Answer

Haha, these entities - and asset protection as a whole - are an endless rabbit hole. In the end you just want to find a strategy that adequately protects you and allows you to invest forward with confidence. But finding the right strategy should make your growth easier. Some investors will run into issues and don't implement the right entities and end up getting really bogged down in the weeds of paperwork.

That's the gist of it! It's essentially a parent-child relationship: you form the parent Series LLC, and from that you can privately file an unlimited number of child series under that SLLC (generally investors will just create a child series for each property, since it is so easy to do.) When investors get enough properties, or are investing in both buy-and-holds as well as fix-and-flips the recommendation may change and involve more than one SLLC to reduce risk and take into account tax implications.

Investors use the Series LLC across the entire US, they just form it in one of the states that offer the formation. The best strategy to work around any foreign filing fees that would hurt your bottom line is setting up Land Trusts which would operate the properties and assign the child series as the beneficiary (property purchased in your personal name > property transferred to Land Trust > Land Trust assigned to child series for liability protection.) This strategy allows you the best financing options available in your personal name, avoids the foreign filing fees, protects you from the Due on Sale Clause and can also provide privacy through removing your name from public record when created correctly.

The SLLC was essentially made for investors who were scaling up and needed a better entity to scale with their portfolios. The Land Trust is a powerful tool that offers the investor flexibility and enables a smooth transition into their future estate plan.

Once again, just touching on a lot of point without going into any of them. You can also check out this article on the SLLC through this link.

Andrew Turella · Answer

As I fall deeper into the rabbit hole...

Hey Scott,

With a series llc formed in Texas (or any other state), do you still have to register as a foreign entity in every state where you want to buy property?  And what if none of those states (not even Texas) is where you live, is that a big problem?

-Andy

Sean Morrison · Answer

Can't speak for your CPA, but there are often concerns about administrative costs involved with series LLCs. In terms of filing fees, it's a great tool. However, you still have to treat each one in the series as a separate company, withe separate bank accounts, record keeping, etc. If you're putting each property into a separate LLC and keeping each one separate, then the series LLC will streamline it a bit. But most of that cost isn't in filing fees, but admin.

Heath M. · Answer

@Andrew Turella, my attorney did both.  He's been great and I'm very glad I decided to reach out to him.  I figure when the time comes for an eviction it'll be good to have a relationship with one already established too.

Andrew Turella · Answer

Thanks, Heath.

Did he set it up the original one for you? And the second one as well, or did you do the second one on your own?

Heath M. · Answer

My attorney advised me towards the Series LLC route.  I'm in TN and it's available in my state.  Currently just using 1 and have another named but not in use yet.  I had lots of questions after reading a few books that made the Nevada or Wyoming LLC route sound tempting.  In the end he said the Series LLC was the way to go, less headache keeping track and still provided the same protection for what I needed.  I'd find a local real estate attorney and come with plenty of questions, it was well worth the money for me.

Andrew Turella · Answer

@Stephen Akindona

Hey Stephen,

Thanks for the reply!

What did your CPA say that made you change your mind about the SLLC?

-Andy

Andrew Turella · Answer

@Scott Smith

Thanks for the reply!! My business partner and I have the vision of a main "parent" LLC with multiple additional LLCs that we will use to buy properties and hold them for cash flow. The SLLC sounds like the exact equivalent but with less cost and filing requirements. Is that an accurate, although simplistic, description? I live in Washington State which doesn't have SLLCs yet, although the properties we're looking at aren't in-state anyway. I guess it's simply not knowing what I don't know about SLLCs at this point. Clear as mud, right?!?

-Andy

Andrew Turella · Answer

Hey Scott,

Thanks for the reply!!  My business partner and I have the vision of a main "parent" LLC with multiple additional LLCs that we will use to buy properties and hold them for cash flow.  The SLLC sounds like the exact equivalent but with less cost and filing requirements.  Is that an accurate, although simplistic, description?  I live in Washington State which doesn't have SLLCs yet, although the properties we're looking at aren't in-state anyway.  I guess it's simply not knowing what I don't know about SLLCs at this point.  Clear as mud, right?!?

Stephen,

What did your CPA say that made you change your mind about the SLLC?

Thanks to both of you,

-Andy

Does anyone use a Series LLC format?

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