Briefly (Too Long, Didn’t Read): For your Texas property or asset portfolio, the best liability protection strategy is to have a Series LLC that holds the properties, but does nothing else. Then, for all property management tasks, you should enlist a property management company that you form separately from the Series LLC. Separating out the assets (in your Series LLC) from the risk exposure of your management company (the standard LLC) creates an additional barrier to liability and further removes your assets from harm’s way.
Maximizing Asset Protection
To enhance asset protection for your real estate portfolio, the goal should be to reduce or eliminate all liability exposure or risk associated with those assets. This can mean a great many things, but one of the more important factors is that of your overall business structure and foundation. Creating separate entities for management versus asset holding allows for one of the greater divides between assets and risks that Texas property investors can take advantage of.
The Property Holding Company: Series LLC
For holding our properties or assets, we can create a Series LLC. This allows for the creation of separate Series in which we hold our assets, the properties. The key with this particular portion of our design is that the company holding our assets must be as boring as possible. A boring LLC is a risk averse LLC, meaning, that by being boring, we are reducing our risk. Every time an LLC enters into a contract with a client, or performs or provides a service or good, or does something in the stream of commerce, that is a risk. We don’t want the Series LLC doing ANYTHING like that. The company owning the property will perform the bare minimum of functions in order to effectively hold property but will otherwise remain fairly stagnant and uninteresting.
The Property Management Company: Standard LLC
The standard LLC that we form will be our Property Management Company. This is the interesting company, unlike the boring asset holding Series LLC. We form the property management LLC to absorb all of the interesting things about property ownership, e.g., every thing that is required in order to run the property. The Property Management LLC advertises available units, signs leases with tenants, coordinates evictions, signs contracts with service providers and repairs, schedules maintenance of the facilities, etc. The LLC for these tasks is actively engaged in management of the property, and is thus exposed to liabilities for every action they take. However, this risk should be centralized and contained within the Property Management LLC, far way from our Real Estate Holding LLC.
The LLC/Series LLC In Practice
Say I have three rental properties that I would like to have rented out and producing income. What does this structure actually look like?
First, I will form a Series LLC in order to hold my properties in three separate Series. So, “Nate’s Properties, LLC” forms Series 1, 2, and 3. Then, those properties that I own are deeded over into their respective Series so that they are held within the asset holding Series LLC.
Now, I need a property management company to oversee the management of the properties. My other LLC, “Gilbert Management, LLC” will now be running the show. Gilbert Management, LLC hires the plumbers to fix the water lines at the property, rents the rooms and signs the leases with the tenants, and otherwise facilitates the running of the rental enterprise.
In this example, you can see how we have separated out the assets themselves from the management of those assets, thus reducing the overall liability exposure of the assets and adding a layer of asset protection on top of the LLCs themselves.
If you want to set up your Property Management structure in Texas, make sure you work with a qualified attorney familiar with the best property management structure to prioritze asset protection and reduce your liabilities. Book a Free Consultation directly with Attorney Nate Gilbert by Clicking Here.
