In this article, we will explain what the benefits are of forming an LLC for your real estate investment business. We will cover topics including “What is a Series LLC?”, “How will a Series LLC Affect my Real Estate Business?”, and “What are the Negatives of a Series LLC?”
A Series LLC is a business formation option that is built for business owners with multiple enterprises. It is cost effective and allows for each enterprise to operate separately. It is designed to protect the separate entities from risk and allow change more easily compared to other business formation plans. Each entry in the series LLC can function independently from the others, with their own hierarchy of management and their own ownership of property.
For a more detailed explanation of a Series LLC, read our articles "What is a Series LLC?"
A Series LLC is popular among real estate investors. It is especially cost effective and streamlined, allowing for one registered agent to represent the entire LLC. Each entry can keep separate books with separate management, allowing for each entry to act as almost its own company within the larger company. A Series LLC can be very helpful for Real Estate in particular as they may own several properties. With a Series LLC, real estate investors can keep the properties of each individual entry separate from each other. Real estate investors often benefit from the protections that come with separating property. These protections will stop the failings or struggles of one property from affecting the others. For example, if a tenant and a landlord get in a legal conflict at one property, the results that case - legally and financially - will not have any effect on other properties owned by the LLC. Liability insurance is an important addition to a business, however it does not have the wide scope of protection that an LLC can offer and may be subject to limitations on certain areas.
Just like a new piece of Real Estate, a Series LLC can come with its share of problems. Series LLC laws are highly versatile by state, meaning the protections offered and specificity varies significantly by state. Some states do not even allow Series LLC formations at all. If you are looking to form a Series LLC, you may benefit from consulting with a business attorney to guide you through the local laws and assure you are completing the legal movements properly. The formation is also fairly new and is still developing, so the laws around Series LLC’s will surely change as they find their formation. Because of the changing laws and the inconsistency between states, business taxes may be complex with a series LLC. You may benefit from contacting a business attorney or tax attorney in your state ahead of filling your taxes on your Series LLC.
To learn more about moving your LLC between state lines, see our article “How to Movie Your Corporation or LLC to a Different State”