How to properly use my LLC

Question

My wife and I have a member managed LLC for about ten years. We own two rental properties in the name of the LLC and we own 10 more rental properties in our personal names. All of our properties have mortgages on them with the two LLC properties having commercial loans. All of our leases are managed by the LLC. All rental income and expenses are processed through the LLC bank accounts. Should I attempt to move all mortgages and deeds into the name of the LLC or just keep doing it the way I am and not be concerned about how the deeds are titled? We are protected by very good insurance policies on all properties. Moving forward, we will not be able to purchase any more without larger down payments. I appreciate any thoughts.

Steve

Natalie Kolodij · Answer

Adding to what Steve said to not confuse.

S Corp = For earned income , IE if you run an management company

LLC= For passive income, Rentals

Natalie Kolodij · Answer

The LLC COULD manage them technically- are you paying yourself management fees?

It's not providing any asset protection to those properties though- which the the purpose of the LLC.

If you're just running income/expenses through an LLC- that's not a management company, that's intermixing funds from your LLC and it's assets with your personal assets.

Steve Vaughan · Answer

I established a mgt s-corp early on so I didn't combine actively earned income with passive income like this.

My LLCs bank accts (for my commercial properties) show very few transactions like paying property taxes & utilities.

It appears you have a co-mingled LLC on 2 levels- mixing funds and mixing purposes.

But at least you are subject to commercial loan terms.  No you cant just change the mortgages of the other 8. Need to re-title, the refi. But i wouldn't . Are your commercial loans at least on commercial properties?

I'd establish a proper mgt entity that owns nothing and stop running my entire operation through one of the  passive property LLC bank accts.

Costin I. · Answer

@Steve Bruza - your post brings into discussion multiple aspects - asset protection, property management, financing, mortgages, transfers, DOS, accounting, taxation, corporate maintenance, veil, estate planning, insurance - all with their individual complexities and interconnected dependencies and intricacies. Good luck bringing an asset protection lawyer, an accountant/CPA and insurance agent at the table to discuss all these and agree on the best strategy for you (not the one that makes them the most money with the least risk/effort).

Here is a diagram that might help you in some of these questions - PM me if you want to chat more, I have a similar situation to yours:

Natalie Kolodij · Answer

You should only be running income/expenses through the LLC for assets that actually belong to the LLC.

The other 10 rentals should not interact with that LLC nor it's bank account at all. You've been breaking your corporate veil- which basically wipes out the protection your LLC offers.

Either:

Move everything into the LLC if you want to run it all through there

Or keep separate books and bank accounts for the 2 LLC rentals, and the 10 personal rentals.

Steve Bruza · Answer

The services I use to manage my properties are the only "fees" that are charged to the properties.  The usual management fee is not something I pay to myself.  Neither of the commercial loans are on commercial properties.  They are both multi unit residential properties.  All the income is passive since the management side of the LLC is not actually earning anything.  But I do see the point you are both making.  I spoke with a real estate lawyer today and he is telling me that the mortgages will make re-titling the properties difficult.  I think this answers my question as I didn't think I was making the most of my LLC.  But again, each property is properly covered with my insurance and umbrella policies.  I guess you are right about mixing the income and expenses, but I am able to keep those transactions separate from my personal accounts.  And I have treated them as such from the beginning.  I may need to take another look at how I want these setup going forward.  I have recently started some estate planning which has brought my LLC under review.  I appreciate your comments.

Steve

Steve Bruza · Answer

Are you saying the LLC cannot provide management services to the other ten properties?

How to properly use my LLC

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