Series LLC for management of single family rental properties

[Mike Wilson]

I am looking for input from folks that use Series LLC's for their rental properties or attorneys that have legal experience with the concept.

I attended a local REA meeting where an attorney discussed asset protection. I had an LLC created and all of my several properties were rolled in to a single LLC, so I was familiar with that but wanted a better way to segment properties in multiple entities, without putting each in an expensive individual LLC. I was introduced to the concept of using a 'Series LLC'. It sounded like a great way to cost effectively segment my properties into individual entities. I followed the attorney's steps to have my rentals set up in a separate 'series' as how a series LLC is designed. Each 'Series' is managed by another management LLC. I am told lots of folks with multiple single family rental properties in Oklahoma do this - I just don't know any of them.

My concern is how the banking is handled. while I have opened up checking accounts for each of the 'series', I use a single management account to collect rents, pay expenses. I never distribute money to the single back accounts set up for the 'series' properties, it was my understanding I did not need to. However, with the issue of intermingling of funds is always in the back of my mind and I am concerned that I am not using or understanding how to properly use these accounts. Should I have retained earnings from each property moved to these accounts at the end of the year? That would be a real pain and create some issues with depleting my management reserves. Not sure of the proper way to manage this.

Long story short, can anyone that utilizes series LLC's for there properties tell me how they manage the checking account issue. What are other's attorney's telling them?

Thanks,

Mike

[Erica Bird]

I agree with @Jon Pitcher's comments, the series LLC entity class is relatively new for the state of Oklahoma so there isn't a lot of good case law. Personally, I don't feel comfortable with the series LLC on my own investments because I don't want to be the example from which new case law is written. Rule #1, "never buy yourself a law suit." But many attorneys I have worked with have debated both sides of the efficacy of this entity type to protect your from liability. I have worked with multiple investors who have set up their properties this way, but it's a very small percentage (a fraction of 1% of all those I have worked with spanning a wide range of overall property net worth sizes).

Another potential negative is currently the 2017 title examination standards for Oklahoma say that the series' are only an "attribute" of the same LLC, not truly a subsidiary capable of acquiring, holding, and conveying real property in its own name. Therefore, in order to have good marketable title of a property, you have to reference the name of the parent LLC on the deed (example "Master, LLC, an Oklahoma limited liability company, as Nominee for its Series ABC"). This is why Jon mentioned all your properties will show up if you look by the LLC name. So the question I've had attorney's pose is if you are really separating liability between your properties if your deeds all still reference they are owned by the same LLC. I've heard this may be changing for the 2018 standards, which would certainly add to the benefit of this type of entity.

Another potential positive of the series LLC is simplified tax returns. You can have one tax return and reduce the fees you are paying to your CPA.

If you still feel the series LLC is the best route for you, Andrew Harroz is an attorney in OKC and a proponent of the Series LLC. He has good experience in setting up these entities and working with investors on them.