Rental Property Investor · Ypsilanti, MI · Member since 2016 · 230 posts · 86 votes
Hello, everyone, my question is about how to structure my rentals and flips in 1, 2, or more LLCs. I've perused the forums and haven't quite found what I'm looking for. Ideally, I'd have a simple system that does not involve entities within entities or multiple bank accounts.
Also, what are your thoughts about PO box vs. UPS store box?
I've gotten some counsel on these items from 1 person, but I wanted to see what others have experienced.
Investor · Mount Juliet, TN · Member since 2014 · 6 posts · 6 votes
10y
Solid asset protection will require segration of assets and multiple entitites, independently of any insurance protection. At the very least, rentals must be in seperate entity from flips due to different tax treatment, and ideally each property should be in a seperately entity to ensure your exposure is limited to that single property.
A typical structure would be a holding LLC that contains your other property LLCs plus your management LLC and development LLC. Series LLC may make the process a little easier, but that is very dependent on your state law. Each LLC will require it's own bank account less you risk losing your protection.
Asset protection through insurance alone is very high risk.
Read on and off this site, see a lawyer who SPECIALIZES in this in your state, and be prepared for complexity.
Investor · Mount Juliet, TN · Member since 2014 · 6 posts · 6 votes
10y
Solid asset protection will require segration of assets and multiple entitites, independently of any insurance protection. At the very least, rentals must be in seperate entity from flips due to different tax treatment, and ideally each property should be in a seperately entity to ensure your exposure is limited to that single property.
A typical structure would be a holding LLC that contains your other property LLCs plus your management LLC and development LLC. Series LLC may make the process a little easier, but that is very dependent on your state law. Each LLC will require it's own bank account less you risk losing your protection.
Asset protection through insurance alone is very high risk.
Read on and off this site, see a lawyer who SPECIALIZES in this in your state, and be prepared for complexity.
Hi Keri. You need to keep each property in separate LLC's for a number of reasons...not just risk control. I found it's best to run your flips through a C-corp (or S-corp). A single person LLC can be treated as no LLC at all, so you should have at least one other person on it. You can have your internal docs state that you get any % of the income/returns, and it doesn't have to be equal to the % ownership.
Separate bank accounts for rentals is a must. Not just for risk control, but it makes it much easier for accounting too...and a rental just doesn't have that many entries per month. It's not as complicated as it may seem.
One more thing. Since the cost of starting an LLC in MI is only $50, and the cost to keep it in good standing is only $25 per year (sorry CA), the cost to do this is not an obsticle.
All of this is part of the January & February Workshops.
Ypsilanti, MI · Member since 2016 · 17 posts · 6 votes
10y
Hi Keri,
I basically have the same question about structure and bank accounts. In podcast 109 on asset protection, (you've probably listened to it), they talk about having 3 LLC's, one for holding your flips, one for holding your rentals and one as an operating company that you do all your business out of and is the face of your company. They really didn't go into how the money flows between them or if it even needs to. Take rentals for example, does your renter pay your operating company and then your operating company pay your holding company who actually owns the property? Do you only need one bank account for your operating company or one for each LLC? Maybe someone with more experience can help!
I basically have the same question about structure and bank accounts. In podcast 109 on asset protection, (you've probably listened to it), they talk about having 3 LLC's, one for holding your flips, one for holding your rentals and one as an operating company that you do all your business out of and is the face of your company. They really didn't go into how the money flows between them or if it even needs to. Take rentals for example, does your renter pay your operating company and then your operating company pay your holding company who actually owns the property? Do you only need one bank account for your operating company or one for each LLC? Maybe someone with more experience can help!
George (newbie from Ypsilanti)
Each rental should be owned by a different LLC, with a different bank account. One LLC that is a member in all of the LLC's that own rentals. A c- or S- corp to flip with.
Flipping and rentals have different tax structures needed, and having a separate bank account for each rental property actually makes accounting easier. Having all the accounting recorded on the banks statements each month for you, and keeping all the accounting for each property separated for you, will make tax time much easier. This also helps you keep track of how each property is doing on its own...and if you decide to sell one of them, you have easy records to pass on, and pull out/separate at tax time.
All you need to do is be organized, and if you're not organized, you probably shouldn't be in REI to begin with.
From my conversations with CPA's, I have been lead to believe that it is rare that a C-corp is tax advantaged for the average real estate investor. Maybe someone has created a thorough explanation of the revenue tipping points and advantages between the C/S/Pass-through LLC structures.
I recommend using a Series LLC for your buy/hold, a Series LLC for your flips, and a separate LLC for the operating company. In terms of the money, the operating company LLC acts as the property manager and collects the money. Then, the money is transferred whenever you choose from the holding bank account in the operating company to the bank account for the appropriate Series (in this case think of the Series just like a client of the property management company).
A critical piece for keeping the LLC structure defensible is that you keep an accurate accounting of the money per each Series. The accounting can be done in quickbooks, excel, or even on paper.
Rental Property Investor · Ypsilanti, MI · Member since 2016 · 230 posts · 86 votes
10y
Thanks for all the input!
I'm hearing that each rental property needs its own bank account. But what if one property needs a roof, but the reserves are not great, and I'd like to pay for it with funds produced by another property? As I have it now, the rentals are all in one bank account and the cash flow is shared (separate on a spreadsheet, but in one bank account).
Again, I'd love to keep this simple and intuitive.
Surat, Gujarat · Member since 2016 · 3 posts · 0 votes
10y
Solid quality protection would require segration of assets and multiple entitites, severally of any insurance protection. At the terribly least, rentals should be in seperate entity from flips because of totally different tax treatment, and ideally every property ought to be in an exceedingly seperately entity to make sure your exposure is restricted thereto single property.
A typical structure would be a holding LLC that contains your different property LLCs and your management LLC and development LLC. Series LLC could create the method a touch easier, however that's terribly enthusiastic about your state law. every LLC would require it's own checking account less you risk losing your protection.
Asset protection through insurance alone is incredibly high risk.
Read on and off this website, see a professional WHO makes a speciality of this in your state, and be ready for quality.