The Traditional LLC vs. the Series LLC: Which Is Better for Real Estate Investors?

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Most investors are familiar with a traditional LLC but not its more useful counterpart, the series LLC. A series LLC is a unique form of limited liability company that provides protection from liability across multiple individual “child” series within each main “parent” series LLC protected from liabilities arising from the other individual series. Each individual child series is treated as if it were its own LLC for liability purposes.

Why Is a Series LLC Better Than a Traditional LLC?

Traditional LLCs are just fine, and they’re useful entities to be sure. However, they do have their limits. That’s why we are such big fans of the series LLC—there’s no denying that its features make it a much wiser choice for the savvy, forward-thinking investor. The series LLC—or (S)LLC—offers anonymity, lawsuit protection, compartmentalized liabilities, and it may reduce operating costs and streamline administration. Here are the details on some of our favorite features of this increasingly popular entity.

The (S)LLC Allows You to Own More Than One Property

A traditional LLC is a tried-and-true method for managing a single property. However, the series LLC model allows you to create a “child” company for each individual asset. This structure is limited only by the number of properties you choose to own. Maybe you only have one property right now, and the traditional LLC seems like it would do you just fine. We encourage you to think more long-term about your goals as an investor. Even if you’re 80 percent sure you’re going to be a one-and-done investor, why limit yourself when you can leave your options open at no extra cost? That leads directly into the next great feature of the (S)LLC.

Related: The Pros & Cons of Using a New LLC for Every Property Purchase

Infinite Scalability Lets You Grow Your Business Forever

With the series LLC, creating a new “child” LLC is simple. When you decide to add to your portfolio, all you do is generate a brand new LLC underneath the parent corporation. It takes about as much time as sending a Christmas card, and even better, you can do it from your laptop. The series is a private document that you create on your computer, sign, and store in your safe.

Compartmentalization Offers the Best Asset Protection Plan for Investors With More Than One Property

You’ve probably heard the old adage about not putting all of your eggs in one basket. The (S)LLC essentially allows you to give each “egg” (or property) its own basket. Oh yeah, and  those baskets aren’t your grandma’s wicker baskets. We’re talking about 100 percent solid steel boxes reinforced with concrete with a big-ass moat full of vicious alligators and flesh-eating piranhas swimming around the perimeter. That’s the level of security the structure provides.

Since each asset is isolated in its own series, should you ever be sued personally, your property will not be vulnerable to seizure. Assets are isolated for liability purposes, meaning lawsuits are often fruitless. The axiom that you can’t get blood from a stone is illustrated well here. Without anything to truly gain, most people aren’t going to try to sue you in the first place. Lawsuits are expensive. Who would want to pay their lawyer more than they could ever win? We’re sure there are some people who are extravagantly wealthy and so persuaded by pure spite that they might consider trying to come after you, but either we’ve lucked out and never met them—or the series LLC structure has kept them away from us and our clients.

Anonymity: So Much Easier With The (S)LLC

Anonymity is perhaps the most critical piece of your asset protection plan. Even if your assets are valuable, they are insulated in their own series (those steel boxes we mentioned above) so one has nothing to do with the other, and none have anything to do with you personally. We simply cannot say this enough to our clients or fellow investors: Anonymity stops lawsuits before they even start. Why? Nobody can successfully sue you or hold you liable for property that they cannot prove you own.

With these features, the series LLC is an excellent choice for real estate investors or anyone who needs a solid asset protection system. We recommend them a lot because the tool is as versatile as it is useful. We’ve seen it make and keep people very rich. Could the series LLC be the first big step you take in building your investment empire? Keep checking out our articles and other writing on the subject to learn more.

What do you think? Do you have experience with a series LLC?

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.