Each property: its own LLC, Debit Card, HomeDepot Card, & Quickbooks file?

Question

I'm starting to really expand my portolio with a lot of houses. As it grows I'm also creating more LLCs. Isn't this going to get overwhelming to have in my wallet a Credit Card, and Home Depot Card for every property? Then I also have to remember which house(s) in which LLC every time I make a card purchase.

Lastly I need to of course have a separate quickbooks file for each property (and in the cases of multiple property to one LLC, separate classes in quickbooks for each property within that LLC).

Sheesh!! Does everybody go through this same ordeal?

Account Closed · Answer

If you use a CPA to do your taxes, and I would imagine you do being an LLC, then you can easily setup all your LLC's in one company file, by linking every  transaction you do to each LLC (class) that you setup.  (You don't need an LLC for each individual property.  Usually 3 properties to an LLC is Okay, but check with your account.  You pay more taxes on LLC's)

You can setup our company that manages your LLC's as Let's say Matt's Properties,  and then setup all your LLC's as a class.  (Matt's Properties is just a company DBA Name that is holding all your LLC's)  Once again this is okay if you have a CPA who will do your taxes for you and not go through a tax software program that is an add on to QuickBooks.

Now you can use your charge cards accordingly, but you will have to assign each purchase you put on that card to the correct LLC. (class)

You will be able to still balance your check book in QuickBooks normally and your credit cards, because all you are doing is linking each transaction you do to the correct LLC.

At the end of the year (or anytime you wish) you will run a Profit and Loss Report by Class and that will give you your bottom line per LLC.

Does this make sense to you?

Nancy Neville

Bill Gulley · Answer

LOL, clever way to ask, use one LLC, get insurance! Life will be simple all the time, at the funny farm, where life is beautiful all the time having multiple LLCs.

There is no need for separate LLCs, one company can hold hundreds of properties, $10M in liability coverage should do most small investors. :)

Morry Eghbal · Answer

I Like Bill Gulley answer on the part of liability insurance.

Rick L. · Answer

You can also use a technique called "Equity Stripping" to remove equity out of an investment property.  Making it less desirable for creditors to pursue.

http://www.investopedia.com/terms/e/equity-stripping.asp

However, as others have noted.  You only really need one LLC with proper insurance coverage to sleep well at night.

Bryan N. · Answer

Each of my properties has $1m in liability on the fire policy (USAA allows that). I manage the income and expenses in property management software, by property and backed up to a hard drive and Google drive for each property.  I have a separate checking/savings account for each property for security deposits and rent payment. I put all expenses on one credit card for everything else.  Swipe the card, enter the expense against the correct property, scan the receipt to the correct property on the hard drive and done.  I will eventually add an umbrella.

Ken Hipp · Answer

I also like @Bill G. responce. more straight up, no lies. Let the Insurance Co. deal with it.

Nathan Emmert · Answer

Make 1 mistake with those cards and your veil is pierced tying the finances of multiple properties together.  Are you personally guaranteeing those cards?  Wonder if that links them as well?

Bill has made the point many times and I'm in violent agreement with him, get an umbrella liability policy as it is far cheaper and much better coverage.

Matt Liu · Answer

Bryan,

1) how many properties do you have?

2) Are they all in one LLC?

3) If all in one LLC, do you use that one LLC for the credit card?

Bill Gulley · Answer

Your best defense against liability is first, good management, then insurance, if these two aspects are taken care of, you will be bullet proof!

Each LLC must be capitalized with cash, not equity, to prevent the corporate veil from being pierced as it must stand on it's own as an entity, otherwise it is viewed as an empty shell.

Lawyers in RE and asset protection areas sell trusts and LLCs each time they touch documents or try to mesh entities together or fix issues, they get paid! Like finding a Chevy car salesman telling you to go buy a Ford!

Get creative and you'll increase your chances of screwing up, get too creative and you will screw up or you'll be paying for hands on management with your attorney and accountant.

Backdating documents is fraud, in any instrument.

Equity stripping with false liens or intent to deplete assets will get you in deeper trouble. There are accepted ways to conduct business, you need to follow the conventional path as closely as you can to reduce changes of your entity being disregarded with sham transactions. Conventional and accepted is insurance!

Before getting paranoid about holding properties, look at the real chance of your being sued, it's very small for a SFD type owner. The stories of big suits and loses are usually with large complex operations, not mom and pop. Those telling the stories usually have an interest in you following some convoluted plan, ask yourself, does this advocate of this plan have anything to gain? Legal work, more accounting work, will they be required in the future or can I totally manage things properly?

It wasn't until the 90s that LLC even became available, entities were C or S Corps, Partnerships, otherwise small investors held properties in their personal name. They had insurance, I've never heard of a mom and pop getting sued for a big chunk, I held properties personally and I never had any issue from liability that is spun as some big risk.

And, if your net worth is 10K, what are you protecting, your pockets aren't deep enough for an attorney to chase you. Just like landlords that don't go after lost rents, you can't get blood out of a turnip. Which is why insurance is best, they may go after your policy, but they will be fighting very deep pockets defending you. You need to carry enough too, if you are negligent (remember, you must be at fault) and your insurance  only defends up to your limits of liability. If you get sued (big if) for $1M and you have $500K, the company can just pay the amount and walk away, leaving you to defend the balance on your own! So, get an amount that keeps them at the table, 5 or 10M should do it. :)

Matt Liu · Answer

Guys, this is what I'm trying to say: It's okay to have everything in one LLC AS LONG AS YOU HAVE DEBT on all the properties, plus insurance, plus and umbrella.

Do you agree? If so, then that's the way to go because it is much better for bookkeeping.