Series LLC or Just LLC's? / Local CPA who invests in RE?

23 Replies

Hi, we currently live in Georgetown, TX which is just north of Austin. We are going to be purchasing our first home in Indiana this April. We want to start it out right. For the first quite a few homes, I see us just staying in Indiana. Should we form a Series LLC and if so should it be in the state of Indiana or should it be here in TX? Should it be in OH, where it is less expensive? or should we create individual LLC's for each property? Should we create the LLC then move the money into the LLC to purchase the property or should we purchase the property in our own name then transfer it into the LLC?

We plan on paying cash for the first one so there will be no loan, but we will take out a loan on the second one. 

Can anyone recommend a local CPA here around Austin, TX that we could start working with that is an investor as well?

Thanks for your time, help, and advice. 

@Dawn Heimann I own a 20 unit in South Bend, Indiana, and I hold it in an LLC in Indiana even though I live in the Chicago area. When it comes to entity formation, I would say keep it simple. If you are going to own multiple properties, think about the value of these properties versus the cost of maintaining and filing separate tax returns. If you are buying $20,000 houses in cash you may want to put several of them in each LLC or in each series if you go that direction.

Hi, John. Great, thank you for your time and advice. 

@Dawn Heimann

I will echo what @John Warren said- especially when starting out, keep the asset protection strategy as simple as possible.

As far as where to create an LLC, in most circumstances, we usually recommend forming in the state where you will hold the property. Definitely talk with an attorney about this one to know what's best in your situation.

Regarding accountants- I would prioritize expertise over location. There are many accountants here on BP that work with clients across the country and have systems in place where the clients barely tell the difference.

Hope this helps!

Thanks, Alan. I like the idea of keeping it simple for sure. In regards to an attorney, should I look at it the same way as a CPA then too? local or non-local? Are you an investor as well as a CPA? Do you have many clients who are investors? 

I can tell you for sure that Ohio doesn't recognize the series LLC as an entity type. Indiana may or may not be the same way. I will echo what others here are saying, keep it simple. It doesn't get any simpler than an umbrella policy and no LLC. Some around here would tell you to never hold a property in your name, but I just don't buy it. It's perfectly fine to hold the first few in your own name with the right insurance policy (IMO). In fact, even though I have LLCs setup, I still own rentals in my own name.

You will certainly run into issues with financing if you expect to take title in an LLC (and you should be financing all your properties!). It will not be a conforming note per Fannie guidelines. This means you will have to find a portfolio lender, or private money, and you will pay a higher interest rate. Just something to keep in mind.

Originally posted by @Kris Wong :

I can tell you for sure that Ohio doesn't recognize the series LLC as an entity type. Indiana may or may not be the same way. I will echo what others here are saying, keep it simple. It doesn't get any simpler than an umbrella policy and no LLC. Some around here would tell you to never hold a property in your name, but I just don't buy it. It's perfectly fine to hold the first few in your own name with the right insurance policy (IMO). In fact, even though I have LLCs setup, I still own rentals in my own name.

You will certainly run into issues with financing if you expect to take title in an LLC (and you should be financing all your properties!). It will not be a conforming note per Fannie guidelines. This means you will have to find a portfolio lender, or private money, and you will pay a higher interest rate. Just something to keep in mind.

Indiana does have series LLC (along with Tx, etc.)

I typically recommend forming an entity with the local jurisdiction, you can then have that owned by a home state parent company.

Every client has different needs, you may be fine with individual ownership...

You should talk to @Scott Smith . He helped me create a series based LLC formed in the state of Texas to hold my properties in Indiana. Each series or cell then owns my investment properties. There's a lot of benefits in regards to this structure that he can discuss with you. Plus he's local to you in Austin.

@Kris Wong is right @Dawn Heimann . Holding properties in your personal name gives you less protection in theory, but it gives you a lot of options as you try to leverage your portfolio. I have a 20 unit and a 9 unit with partners, and I can't do anything creative with those like I can the property I hold in my own name. For instance, I can't re-leverage them as easily, nor can I cross collateralize them to name a few simple strategies. 

All this just to say, holding a property or two in  your own name is probably not as big a risk as holding 20 million in your own name would be!

Thanks to each of you; John, Travis, Ronald, and Kris. I can't say enough how grateful I am for each of your comments, advice, and time. It is very much appreciated. 

Travis, we actually spoke to one of Scott Smith's contacts and have yet to schedule a consultation with him. I was a little hesitant honestly because of the expense of it all. I am new at this and didn't want to just jump right in paying all these fees without having spoken to others regarding our needs. Did you speak to any others in his field before getting his help? Are the costs about the same across the board? Are you very pleased with your relationship with him and his company?

Dawn, I looked extensively at the whole subject of LLC, Series-LLC, asset protection, and all the rabbit holes they open (structures, DOS, financing, insurance, etc.) and can send you my notes and checklists, if interested.

I have a couple of people who are telling me to form the LLC through Delaware for a property in Indiana? Wouldn't we have to pay for filing for both states?

Also, Can we only leverage property that is in our own personal name?

Can you guys tell me specifically who we need to have on our team so that we do things right in the process of buying properties? So far we need a CPA and an attorney...

Thanks again, and sorry for all of the questions. :)

Have you guys heard about any new recent tax law that allows you to use stock to purchase property without the tax implications in previous years? Something like a 1031 but it's not that of course...

Hi, Costin. Yes that would be great if it's not too much of a hassle. Thank you so much!

I have been looking at a series LLC setup myself. I have 1 rental property in WI, and am looking to add more in the future. I found https://www.kgrlaw.com/ in a web search but i don't know anything about them but they claim to know about setting up series LLC's in Indiana. I haven't yet talked to them.

Thank you William. That is great to hear. Congratulations on your first property. We are excited and can not wait to purchase ours in April! I will check them out.

@Costin I. Would you be so kind to share those notes you took with me as well??
I have been looking also into the benefits of keeping a property as a residence instead of investment property while adding a land trust with the LLC as the beneficiary.
Does anybody have any experience with this method??

@Sergio Castillo - that is what I have implemented - land trust with the LLC as beneficiary. But for investment properties, not for residence. For residence you should have homestead exemption (weaker or stronger depending on the state) and if you have a mortgage, the note itself should act as a deterrent to some extent.

Anyway, I sent you my notes - it should clarify many questions and save you some research.

@Costin I. - So far I am mostly interested in the land trust with the LLC as the beneficiary. The reason being that I am a partner of 6 in my LLC. I would like to purchase a 4-plex on a 203k FHA loan in my name. I would like to Buy, Rehab, Rent, and Refinance. My attorney can draw up a promissory note with the purpose of my partners buying out their shared interest in the property when refinancing into a conventional loan. This is when the land trust would be implemented and naming the LLC as the beneficiary. My partners are all also doing the same process. We are searching and analyzing for the deals together but purchasing individually on each of our names. Then we would like to use the equity in these first 6 individual investments to move forward from residential properties and fund our investment properties from there on. In other words, I am mostly interested in this process because it would allow my partners and I to grow our equity together from the beginning with the lowest down payment available for first time home buyers which would be the 203k FHA loanin regards to our strategy. What do you think of this?

Sounds complicated and different from the original question. I'm not sure I understand exactly your scenario, so I can't offer an opinion. 

The LLC is a legal entity that gives you asset protection. The land trust gives you anonymity, and maybe some title insurance transfer savings and DOS avoidance, but no protection and no tax advantage. Taxation is a different domain, and so is insurance. They all are tools you need to learn how they work together and wield them accordingly.

I have a Series LLC and it has limitations from an accounting standpoint and with banks. You basically have separate companies that share a tax ID but somehow aren’t the same company. Explain THAT to a bank. So I am going to do away with my Series and run it as one LLC. The ONLY benefit is franchise tax savings. IF you keep everything separate it could be another asset protection. For me it’s just a pain in the butt.

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here