Bank Operating Account

[Josef Torkelsen]

How do you guys recommend setting up property operating accounts (e.g.; checking) for multi-family apartments?  Do you have an operating checking account for each property? One account for all your properties? #AskBP

[Bill Gulley]

Well, sorry folks, LOL, an operating account is NOT comingling funds! And having ten LLCs for each property is nuts, great for your tax guy hitting you up for all the work necessary and 9 more tax returns than you really need.

You need two accounts being a landlord, one Escrow Account and one Operating Account!

Do not comingle funds with an escrow account, except for funds held in escrow, you can hold 500 different people's money in one escrow account. .

You need a PERSONAL ACCOUNT, do not comingle funds between your personal funds and your business funds. Don't buy personal items with your company checkbook, write a check from the business to yourself, called "Drawing" and deposit that in your personal account, then go spend your money.   

Look at the largest (or any) building contractor building homes, do they have a separate company for each house they build? No, they don't. You may need a separate LLC for an apartment complex, say one of 50 units another with 200 units as they have different business concerns, but if Jack Smith owns both, you'll likely see a Jack Smith Holding company, where accounting is consolidated limiting the accounting and tax burden.

Those starting out, with limited funds have no business really of trying to do one property in one business. You can look up the threads of piercing the corporate veil where more than one attorney has mentioned that funding a company properly must be accomplished for it to be recognized as a legitimate business operation, this is significant with single member LLC or one closely held by family members.

You can't just have $652.84 in an LLC holding $50,000 in assets, that would be an underfunded operation, more like $2,000 can show that you can meet unforeseen expenses, $5,000 would be much better.

So, do you really want to fund separate LLCs with idle funds just sitting in 5 different operating accounts? No, I didn't think so.

Now, consider the scared side of new investors being sued. Liability! First, that is what insurance is for, have enough of it and you'll never lose your own house and bank account.

Okay, you think you're other properties are protected......if you lost a case and a judgment was made against you, all those other companies are separate assets, just like stock, and all of your assets become a target. The attorney for your claimant just comes through the back door, you didn't protect anything!

Human nature has not changed in the past 20, 25 years, in Missouri, like many states, we didn't have LLCs in the mid 90s, before that investors held properties individually in their names and simply got insurance. It's the way most newbies should start out too, I did and never had an issue. Now, that is assuming you don't break laws or do something intentional, but in those instances, an LLC won't help you either. If you are negligent your insurance covers it, you also have to be negligent. Just simple good management takes care of that negligence matter! Those renting a house today are no more inclined to sue you than they were 20 years ago.

When "the man" tells you that you need this medicine consider what angle they are playing from, the man is selling the medicine! Attorneys that set up LLCs are selling their product. If a tax guy accounting type tells you to have more LLCs, he's spending time on your books and taxes! Your insurance agent will be telling you that you must have separate policies for each company, true, but he gets to write new policies instead of one. Or, is someone telling you something because they don't have a clue and believed someone else?

I don't have a motive in telling you to keep it simple, less expensive, less burdensome, reducing your risk of messing up managing multiple companies or having two accounts, an escrow and operating account for each business and keeping more money set aside for each company than you really need to. Nope, I don't benefit from telling you that at all. Good luck!  :)