Multiple LLCs one for each flip?

[Louis Van Der Westhuizen]

Hello BP colleagues

I live in Southern California and from what I hear series LLCs are not recognized by the state of CA. I've also read (various sources) that it's a good idea to create a separate LLC for each investment property (buy and hold or flip), unless of course you have the option to create a series LLC. The min cost payable to CA each year for each LLC is $800 so you can see how quickly that would wipe away any positive cash flow. As far as flipping homes, assuming you create an LLC for each project, what are you doing with that LLC after you sell? I hear you should keep it going just in case there is a lawsuit related to that flipped property, but that would be really cumbersome and in CA really expensive, $800/year at the least. I would love to hear your thoughts on this, and of course, ultimately this is something I would discuss with a legal professional but until then, what are your thoughts.

[Scott Smith]

@Louis Van Der Westhuizen Hey, great questions!

This is an issue I see quite often on the forums. There is way to operate your properties within a protective structure known as a Delaware Statutory Trust. This offers you the same protections of the Series LLC, a structure I am also very familiar with, while allowing you to operate as a trust rather than an incorporated entity such as an LLC - meaning that you avoid the annual franchise fee in California.

Delaware law provides that a Delaware Statutory Trust (DST) is an unincorporated association recognized as an entity separates from its owners. While DSTs are formed pursuant to the laws of the State of Delaware, beneficiaries need not live on conduct business in Delaware. In fact, the DST is ideal for the California resident precisely because it avoids the burdensome Franchise Tax.

A DST may sue or be sued, and property held in a DST is subject to attachment or execution as if the trust were a corporation. Beneficial owners of a DST are entitled to limitations on personal liability similar to those of a LLC. Assets with inherent liability, such as real estate, should be placed in the Series component of the DST through the individual child series. Other types of assets remain directly in the trust. A DST may even merge or consolidate into one or more outside business entities. Also, creditors of the beneficial owners of a DST may not asset claims against property held in the trust.

There is a lot more that goes into the DST which allows it to function in California. Due to its status as a trust and the ability to form child series within the entity, the DST is a fantastic option for both holding property in a way that separates your liability while also saving you expenses. Be sure to check it out or ask some more questions about it. I have had the benefit of assisting with and forming hundreds of DSTs - it is a fantastic option for those living in California!