If you're a real estate investor, chances are you've considered setting up a limited liability company (LLC) to protect your assets. But, did you know there is a special type of LLC designed specifically for real estate investors? It is called a series limited liability company, and it offers some unique benefits. Here's what you need to know.
What is a Series LLC?
A series LLC is an LLC that consists of multiple, separately operated divisions, each with its own assets, liabilities, and finances. Think of it like a holding company with multiple subsidiaries. The advantage of this structure is that it allows investors to shield their assets from liability in one division while still being able to benefit from the income of another division.
As a self-employed real estate investor, you may not be the largest company out there, but you can still use the tools that larger companies use to maximize profit and shield investments from loss.
For example, if you own three rental properties — a duplex, a fourplex, and a single-family home — you could put each property into its own LLC underneath the series limited liability company. If one tenant slips on the stairs and sues, the other two properties would be protected from liability.
The benefits of a series LLC don't stop there, however. Another big advantage is that it allows you to pass through profits and losses to your personal taxes, which can save you money at tax time.
Is a Series Limited Liability Company Right for You?
If you're a real estate investor with multiple properties, then a series LLC may be right for you. However, there are some downsides to consider as well. A series LLC can be more expensive to set up than a traditional LLC because they require filing additional paperwork with the state. Additionally, not all states recognize series LLCs. Currently, only about half of the states do. So, if you have properties in multiple states, setting up a series LLC may not be possible.
Overall, series LLCs are a great way for real estate investors to protect their assets and save money on taxes. While they may be more expensive to set up than traditional LLCs, the long-term savings and peace of mind are definitely worth it. As with any tax or investment advice, talk to your adviser about how a series limited liability company would benefit you and your real estate investments.