Setting up multiple LLCs and Business Credit Cards

[Ponni Carlin]

Hi Everyone! I am in the process of setting up multiple LLCs and need to manage the rents and expenses within each LLC. I need to get a business credit card for each one. Has anyone experienced how that impacts your credit score if you do it all at once? Or is it better to get one, wait a bit get another, etc. I can use just the checkings account to for payments, but figured might as well earn points while I'm at it. Thanks!

[Luis Alvarez]

To the original questions @Ponni Carlin and @Brittany Guimond, forgive my long-winded, estate planning/asset protection answer, but here's the answers and hopefully the logic behind the 'why':

We are investors because we are conducting business. If you own different properties, in effect, these are all diff business lines of your overall real estate business.  Accordingly, you should have different LLCs for each and every property, and ideally, if you are trying to scale up properly (which it sounds like you're well on your way of doing so) you want to have separate books, accounts, and yes, credit cards for each.  "BUT that means diff accounts....lots of admin...etc...etc" Yes, yes it does. This is what all businesses on large scale do. 

To the LLC topic, when we set up an LLC it means this: include the State registration, pulling an EIN (optional, but to create a truly separate entity, should be done), put together an Operating Agreement (even if you are the sole member, because again, this is part of business formalities necessary to show in a court that you're intention was to make the LLC separate from you personally); and yes, you should open a separate business bank account for the LLC (because comingling funds in an account under your personal name is the easiest way for a suing attorney to collapse the LLC). If you used a personal loan to acquire the property, I would NEVER, EVER, own a rental property in any individual name/capacity. The properties need to be deeded over (with full Grant Deeds, not Quitclaim Deeds, to provide full rights and full title rights) to the LLC.

To the Due on Sale Clause, "BUT the due on sale clause....etc...etc..."  yes, some version of this is found in every modern day mortgage, however, there are documented and regulatory exceptions for transferring title to property and NOT triggering Due on Sale....especially when the purpose of the transfer is to entities for the sake of estate planning/asset protection.  You just have to have the knowledge of where this is found and if and when the lender ever finds this (which they don't) then a half page letter citing the exception and a brief explanation covers this.  This is not an issue.

To Umbrella Insurance as protection, while you want landlord coverage, as well as an umbrella policy. Please repeat after me: insurance does not protect you from liability...it only pays the litigation costs and damages once you've already been found liable/negligent and have a judgment in your personal name (if you didn't change title on that rental property and a cause of action).  That being said, an LLC DOES NOT make the property immune from liability...it does however, limit/contain it to the assets within that same LLC. This is something that is unfortunately vastly misunderstood throughout the real estate investor world. Generally, an umbrella policy covers any excess damages that haven't already been paid by your underlying policies, but those policies need to pay in the first place, and then the umbrella kicks in. I have insurances (landlord and umbrella) in place for my properties, but I know how insurance companies stay profitable (by only paying claims that they absolutely must pay). Keep in mind that these policies are drafted by sophisticated attorneys and drafters and typically have precise language and exclusions. How often do investors actually read through an entire policy and understand the exclusions?  I can tell you that attorneys sometimes don't even read them...

It's nice to hear that some out there have been in the game for decades, have all their properties in their personal names, and nothing catastrophic has ever happened to them. Best wishes and glad to hear that at times, but from my professional experience, having these things in place are less of a "personal preference or opinion" it is just using resulting to validate what we believe is the appropriate course.  You can ride a bike for 20 years without a helmet and never have an issue, therefore, in your experience a helmet is unnecessary...until that time you hit an unexpected pebble, fly over the handle bars and think...wish I had a helmet on.