Seperate bank accounts for each propertty LLC structure finances?

Question

I'm currently looking at the best way to handle managing properties. I currently use Buildium and quickbooks four about 25 units, but recently I've put these properties into their own llc's for protection and ease of buying and selling and while tracking finances isn't bad now, when the number of properties and units gets in the thousands, I'm thinking it might be hard. How do you guys/girls out there handle large amounts of properties? Do you have a separate bank account for each? Do you use your own management company that pays expenses and collects rent and flow through a net amount each month? I would like to have a solid method in place before I start to scale this.

Andrew Cushman · Answer

@Kevin Q., we've acquired about 1,600 units, with the property size ranging from 56 units to 348 units. Here's what has been very effective for us:1. Each property has it's own LLC and bank accounts that are reserved for that property. No other funds, either personal or from another business, ever enters or leaves these accounts.2. Third party property management handles all of the daily transactions - collecting rent, paying bills, accounting reports, etc.3. For the money that flows to us (i.e. that leaves the property and comes to us in the form of fees or distributions), it all comes to one managing LLC. That is where we use Quickbooks classes, as @Jeff B. mentioned. That allows us to have all the fees/distributions flow to one entity, but by assigning a class to each property we can always track our income from each property.If you have a collection of much smaller properties, bank accounts for each property would be a lot to track and probably not necessary. You may want to have a managing LLC that handles all of the transactions & bank accounts, and track each property with QB classes. Setting up a series LLC may also simplify things.Part of it is just your tolerance for hassle, and balancing that with your tolerance for risk :-)Andrew

Chris Martin · Answer

I think the way to think of it is use classes for SFR if you are in the SFR business with less than 100 or so properties, and use a SPE (Special Purpose Entity) if you have lots of SFRs (like thousands.) That's what American Homes 4 Rent does. They put a few hundred houses in each LLC. For them, I would assume an LLC becomes the equivalent of a class. We are doing a similar thing for apartments. Each apartment can 'roll up' to correspond to a class, and accounting (our K-1s via QB) is done on an LLC or class basis. The apartment monthly PM reports translate to entries per class and an entry as an item on an IRS 8825 statement. This works well since investor's K-1s can be derived from an 8825 and you can scale to thousands of discrete apartment properties relatively easily. As you scale, you end up with a lot of returns and lots of K-1s, but they are relatively simple. It's just tedious. Hope that helps.

Kevin Q. · Answer

@Andrew Cushman , Thank you so much. That is exactly what I was looking for. That makes sense and seeing that you've used it to build up to 1,600 units, I can see that it's worked well. So does your third party llc use the individual properties checkbook to deposit rent and pay bills? or do they handle all of that can deposit the (net) amount into that property's bank account? I was thinking of setting up a mangement llc that would handle all transactions for the properties and depositing the balance after expenses each month into that property's bank account.

Caleb Heimsoth · Answer

Does that account have minimums? I was going to go with capital one for my bank account for my first property but maybe I should just do it at chase. That's where I do my normal banking

Lane Kawaoka · Answer

Chase bank has 200 dollar sign up for their base business checking account. I made a spreadsheet with other options but I think I will go with them.

Daniel Hyman · Answer

Kevin Q. Separate bank account for each property seems like overkill to me. But you'll definitely want a separate account for each entity.

Kevin Q. · Answer

I have been uses classes which seems to work, but how about bank accounts? do you use one account and intermix all the funds? That seems like it could be an issue with a lawsuit. I'd like to keep them separate but though maybe the best way to setup a management company to act as another company to handle all inflow and outflows, but I still struggle with how many bank accounts I would use and for what.

Jeff B. · Answer

Your accounting system is where you segregate the properties. As an owner, personal or legal entity, only one is required per entity.Using Quickbooks CLASSES is where you specify which property the debt/credit belong to. You can do the same kind of thing with spreadsheets by adding a column PropID for income & expenses.