There was a recent Bigger Pockets blog post about Series LLCs vs traditional LLCs. It sounds like some states don't allow them, but you can get one that is registered in another state. Texas, Delaware or Nevada appear to be the best options. I'd love to hear from anyone who has a Series LLC and can share pros and cons. Thanks!
I mentioned this in a different post, and this is just how I feel. I had a series LLC, but not anymore. The fact that it was so easy to create a Series LLC caused some problem for me.
I created a series for each of my rental property. Sounds like a great plan, right? Maybe, maybe not. Let's say you have 10 rentals and created 10 series. That means you have 10 checking accounts, 10 savings accounts, 10 debit cards, 10 checkbooks and potentially 10 credit cards. That was not something I liked, so I consolidated into one.
Sure, the risk went up, but the goal of the asset protections should be weighted with the hassle factor, cost, likelihood of losing your assets also, IMO.
Thanks for your feedback. I definitely would not want a separate bank account for each investment property!
@Sophia Griffies I work in a Registered Agents office and was speaking to my associate about forming a Series LLC when I purchase my 1st property. I can understand the hassle of various bank accounts, debit cards, etc that @Soh Tanaka was referring to. Seems as though that is an issue as most banks don't understand the series LLC structure and how to open separate accounts for each series within a single LLC. On the flip side of that, I do like is the idea only having to pay that one annual $300 franchise tax fee to the state. If someone has 10 separate LLC's then you have $3k in franchise taxes and an additional fee for each to the Registered Agent. We can act as our own Registered Agents so that additional fee is null and void. Another issue is that a court in another jurisdiction could decide not to recognize the legal separation afforded under the Delaware law. Would it be best to form a series, I'm still on the fence ...
I don't use series LLC and honestly don't even know if its recognized here in NC.
But i do structure my businesses with multiple LLC's. Yes, you have to pay $300 annual fee but you don't have to have separate bank accounts, credit cards, etc for every single one of them.
I also separate my LLCs (my business ventures) not only by assets value but also by business activity.
So my structure would look something like this:
-- LLC for real estate transactions (buying, selling real-estate and handling clients) - you would have your own bank account here with credit cards etc.
-- LLC for property management (purely for PM, you still have your bank account here, credit cards and trust account, then this LLC is the Property Management, the other LLC is the client)
-- LLC's to hold property titles based on the equity value. So you might have one LLC for couple of properties that might have higher equity value that justifies the cost and hustle of the owning the LLC. And then you might another one for say 6 properties that dont add up with that much equity. Once you grow the equity of some of the assets, you might want to move title into separate LLC. There are no bank accounts, credit cards, nothing like that. Its purely to hold title and cover liability.
In my mind, there is no point of having one LLC for every single property you own especially if you don't have enough value in that bucket.
There are also trusts and other legal means you can do to move properties around and protect your investments. It does not always have to be an LLC.
I'm not an attorney so im not trying to give any legal advice on how to structure your business but this is what works and make sense to me.
@Jiri B. has it....
In addition, of course, you may have different partner makeups per LLC and need an LLC for handling your membership requirements for profit/loss/capital (P/L/C) and divvy up percentages (same logic also applies for Investment Tax Credits for people who like to pay no current or future taxes... like the 'bigly' man for the past 20+ years).
Let's pretend you are the biggest landlord in Raleigh. Would you use a series LLC from another state? Or a 'domestic' series LLC in NC? Maybe if an NC series LLC existed... but it doesn't, so the answer is relatively easy.
So how does the largest landlord in Raleigh do it? How do they hold their roughly 2,040 houses (note 1) in NC? The answer is in multiple NC LLCs... like about 5 or so now, each containing (owning) several hundred houses. And for a historical perspective, from people (and me) who saw it happen in real time, you can search through BP for posts like this one that describes what I (as one investor) experienced it at the time.
So for $202 a year ($2 for paying electronically) per LLC, they (AH4R) are getting a deal from NC. 2,040 properties and only 5 tax returns to file... $0.10 a property/year LLC government overhead. Isn't that the way it is supposed to be?
In business, unlike first grade, you can count any way you like: AH4RP One, LLC; AH4RP Three, LLC; AH4RP Four, LLC; AH4RP Five, LLC; AH4RP Nine, LLC (see image below of NCSOS search results starting with 'american homes'... LOL!)
(And, yes, I am aware some similarly named LLCs (all with same Agoura Hills CA address) were consolidated through financing and/or mergers... so don't flame me for taking some liberties... I think my point is clear - put a few hundred houses in an LLC then move on... LOL!)
Notes: 1.) From latest 10-K filed with the SEC
I just created an NC LLC and I looked into a series LLC because it sounds so good on the surface. I worked with an attorney who has focused on corporate start ups for decades in North Carolina so I trust his opinion. He says series LLCs are not recognized in NC business courts. He recommended forming separate LLCs as investment assets grow. His top recomendation is, aside from ensuring you properly form your LLC, keep separate checking accounts, have an operating agreement, etc. is to make sure you have enough insurance to absorb the entirity of a claim if one occurs.