Money flow for an LLC?

[Ronald Hayden]

Hello!

First post on BiggerPockets, as a huge fan of the podcast. Oddly, I'm a bit proud to have a naive question to start with.

My business partner and I are in the process of creating an LLC, and I realized I have some questions about how money flow works.

I'm planning to make an initial investment in the LLC that will give us the funds required to make our initial buys. But given that LLC profit flows through to the members, I'm not sure how it works to re-invest in the LLC.

The real estate attorney who is setting up our articles of organization said that we should keep the cash in the LLC low, and that we should be "continually dispersing" any profits that came in.

Okay, but we want to be building up the cash available so we can make larger buys over time. Our general plan is to start with flips to build up cash, then transition to buy and holds over time to get passive income.

So how does all this work? Do we "disperse the profits" then re-invest to make a particular buy? Is a re-investment like that considered a loan to the LLC or what?

Any insights much appreciated!

 -- Ron

[Jonathan Twombly]

@Ronald Hayden   We do something similar to what @Dan Schwartz suggests.   We have two LLCs - one is a holding company and the other is a management company.  The holding company holds working capital we need to tie down deals.  We get that money back when funding a deal from investor money.  That company also holds our carried interests on deals.  

Management fees go to the management company and pay for expenses.  Profits flow through.  

Working capital cycles in and out of the holding company.  Profits to the carried interest flow through and are distributed.   

If we invest money personally, it's done directly into the property LLC and not through either the holding company or the management company. That cash is treated like any other passive investor's money. It's kept separate from our management and carried interest/ promote, legally and from an accounting standpoint.