What account do you use to pay your mortgages on your rentals to avoid comingling ?

Question

Hi guys,

Ive been trying to figure out how to pay mortgages on my rentals to make sure there is no co-mingling of 2 different LLC's funds or my personal funds with those LLC funds.

So lets say you have a house that is in an LLC, and the tenant paid the rent into the LLC's bank account. Do you send the mortgage payment and pay all of this LLC's expenses from that account?

Richard Elvin · Answer

@Mary Jay I think that this is pretty straightforward. The Property Management LLC (PM) collects the rent for the Rental LLC's (R-1, R-2, and R-3). PM takes it's cut, whatever that is (for our example it's 20%) then sends the remainder to the rental LLC's.

Example: PM-LLC collects rent from the tenants of: R-1 $825, R-2 $1000, and R-3, $1250. So PM has $3,075 in rents collected.
PM-LLC then pays out the rent to the rental LLCs, minus the PM fee of 20%.
So R-LLC-1 gets $660, R-LLC-2 gest $800, and R-LLC-3 gets $1,000.
Each of the LLC's then pays their own expenses from their individual bank accounts, mortgage, repairs, office expense for the PM-LLC, etc.
Nothing is comingled, the PM-LLC collects, then pays out the rents, keeping it's pm fee.
The rental LLC's get the rent's from the PM-LLC, then pays for expenses individually.

This is just the opinion of some guy on the internet. I hope it was useful!

Andrew Freed · Answer

@Mary Jay - Yes, I have a different bank account for each property and as well as a different bank account for each LLC. I attempt to run all charges through each bank account for accurate bookkeeping. Otherwise, it would be way more labor intensive to figure out the profits and losses per property.

Additionally, I highly recommend that you hire a bookkeeper or someone to reconcile your books each month. Being proactive about managing your books is way easier than trying to reconcile all of the charges at years end, which you will definitely forget things. I hired a bookkeeper to keep track of my books for a couple hundred bucks a month. It's felt like a huge burden has been lifted off my shoulders, it's well worth it!

Mary Jay · Answer

Thank you so much guys!

Chris Seveney · Answer

@Mary Jay

Yes

One bank account for each LLC for operating income and expenses

Escrow funds should be kept separate

Sean O'Keefe · Answer

@Mary Jay I'm going to agree with the rest of the crew and suggest a separate bank account and credit card for each LLC (at min) and if you can swing it 1 per property - your CPA and bookkeeper will love you for it. I know from personal experience this is painful since I have a few rentals myself and multiple LLCs.

In addition, you should also consider accounting/tax software specifically focused on real estate (like, Stessa, Digb.com, or Quickbooks Online) to help keep everything organized between LLCs and properties. Investing time in setting up separate bank accounts won't just make your life easier, it will save you real $$$ at tax time since CPAs generally charge a clean-up fee or hourly rate to sort this all out for you at the end of the year, if you don't do it properly for them.

Mary Jay · Answer

Thank you so much!

What if I have a property management company that collects all the rents from all the tenants into the property managements bank account (My property management company is in its own LLC and I has its own  bank account for that property management LLC)...That could be commingling?

I see a lot of big landlords who do that

Antonette El Baz · Answer

When it comes to managing multiple LLCs and rental properties, it's important to keep things separate to avoid co-mingling funds. To answer your question, yes, it's generally a good practice to pay the mortgage payment and other expenses for a specific LLC's property from that LLC's dedicated bank account.

So, for example, if you have a rental property that is owned by an LLC, and the tenant pays rent into that LLC's bank account, it's best to use those funds to cover expenses related to that specific property. This includes mortgage payments, property taxes, insurance, repairs, and other expenses directly associated with that particular LLC and property.

By keeping the funds separate and using the LLC's dedicated bank account for its expenses, you can maintain clear financial records and ensure that there is no co-mingling of funds between different LLCs or your personal funds. It's a smart way to keep your finances organized and protect the liability protection that an LLC provides.

Of course, it's always a good idea to consult with a qualified accountant or financial professional for personalized advice on managing your LLCs and rental properties. They can help you set up proper accounting practices and make sure you're following all the legal requirements for your specific situation.

Hope this helps!

Mo Maktari · Answer

Each property/LLC should have a separate bank acct. Your CPA will love you if you do. Plus it's easier to manage.

What account do you use to pay your mortgages on your rentals to avoid comingling ?

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