If you’re going to own rental properties, one of the things you might want to do is to establish an LLC. An LLC, which is shorthand for a Limited Liability Company, is a type of business structure that helps protect you against liability for claims against your company. As an owner, you would be taxed as a partnership and receive the protections corporations already have.
If you are going to work with multiple properties, it may be a good idea to look into working with a series LLC structure. This form allows you to split up membership interests, operations and assets into independent groupings called series. Each one of those series works as a separate entity that will have its own accounts, records, books and name. For example, one complex might be called “Windwood” and another “Landsdown.” They would each have their own documentation and accounts but still be under your overall LLC.
Series LLCs: Relatively new structures for business
Series LLCs are relatively new in terms of business structures, but the structure itself is not particularly unique. A series LLC works like an umbrella LLC, which is one where one major company oversees several smaller LLCs.
In this format, the master LLC controls all the other smaller LLCs, known as cells. The cells have their own debts and obligations. If you’re familiar with corporations and subsidiaries, this business structure works in a similar manner.
Why would a real estate investor want to have a series LLC?
The goal of any real estate investor should be to protect their assets and limit their liability. With a series LLC, the liability for each one of the rental properties would be kept separate from the other. In a typical LLC, all rental properties would be part of just one LLC.
A series LLC may be tricky to set up, so if you’re interested in doing so, it’s a good idea to review all your options with your business attorney. Once this structure is set, you should feel secure that your properties will be protected against each other in cases of lawsuits or other claims.