Time to find a new Accountant?

[Christine Aledam]

Hi BP Crowd!

This is my first time posting, and I'm seeking some guidance. I currently reside in San Diego, CA, and I am in the process of purchasing two properties in Henderson, NV, in my personal name. My question relates to when and how to structure a business account. By "business account," I'm referring to setting up an LLC as well as a business bank account.

My goal is to expand my real estate portfolio by acquiring approximately two properties per year. I plan to self-manage these properties and intend to operate my portfolio as a business, tracking all income and expenses while avoiding the commingling of personal and business funds. I will also be tracking expenses related to repairs, maintenance, travel to and from NV, hotel stays, meals, gas, and other regular business costs.

In the long term, I aim to purchase additional properties under the business name, but I understand I need to establish at least two years of income and credit history before doing so.

The issue I'm encountering is that my accountant has not provided any guidance on how to structure this scenario. Instead, he seems focused on discouraging me from setting up an LLC due to the fees associated with California. How should I proceed with structuring this plan? Am I not asking the right questions, or should I consider finding a new accountant?

Bonus question: Should I execute the leases under the business name and tenant’s name, or should the leases be in my personal name and the tenant’s name, considering the loan is in my name?

Thank you for your time! 

[JD Martin]

Quote from @Christine Aledam:

Hi BP Crowd!

This is my first time posting, and I'm seeking some guidance. I currently reside in San Diego, CA, and I am in the process of purchasing two properties in Henderson, NV, in my personal name. My question relates to when and how to structure a business account. By "business account," I'm referring to setting up an LLC as well as a business bank account.

My goal is to expand my real estate portfolio by acquiring approximately two properties per year. I plan to self-manage these properties and intend to operate my portfolio as a business, tracking all income and expenses while avoiding the commingling of personal and business funds. I will also be tracking expenses related to repairs, maintenance, travel to and from NV, hotel stays, meals, gas, and other regular business costs.

In the long term, I aim to purchase additional properties under the business name, but I understand I need to establish at least two years of income and credit history before doing so.

The issue I'm encountering is that my accountant has not provided any guidance on how to structure this scenario. Instead, he seems focused on discouraging me from setting up an LLC due to the fees associated with California. How should I proceed with structuring this plan? Am I not asking the right questions, or should I consider finding a new accountant?

Bonus question: Should I execute the leases under the business name and tenant’s name, or should the leases be in my personal name and the tenant’s name, considering the loan is in my name?

Thank you for your time! 

Until the business has enough assets to matter, it really doesn't matter all that much. You can just do a DBA (doing business as) in order to be a "business", since you're still going to have to personally guarantee these home loans. I own a lot more than 2 homes and all these years later still have never bothered with LLCs - I just keep really good insurance. You don't need an LLC to be an actual business, and an LLC isn't a guarantee that someone won't be able to go after your personal assets as they're "pierced" all the time by decent attorneys. Your accountant probably sees your idea of going forth this way as a waste of money, and without knowing what those costs are in California I'd probably agree with him.

[Jonathan Bock]

@Christine Aledam

When you visit your doctor with a new issue do they charge you?

When you asked your CPA for guidance did they charge you?  What is your arrangement with your service provider

[Aaron Zimmerman]

You may be in a situation where you’re paying for tax prep only. I would encourage you to ask your CPA what’s included in the scope of services.

If you have a California LLC, there's an $800 per year filing fee, at a minimum, so that's likely why your accountant is saying not to have an LLC.

The leases can be set up under your name. That’s what I do for my leases.

I echo the comment on getting really good insurance with an umbrella policy as well. 

[Bill Hampton]

@Christine Aledam

If you create a California LLC, the $800 cost is a tax deductible expense.

Once you have the LLC and IRS Employer Identification Number you can open a business bank account to track rental income and expenses.

If you don't create an LLC, you should open a separate personal checking account to track rental income and expenses. This is helpful for monthly bookkeeping and tax return preparation.

Good luck. 

[Jake Baker]

@Christine Aledam

I agree with @JD Martin that the focus should be on good insurance. If the property is owned in your personal name, it doesn't make sense to me to create an LLC. Many investors hold properties in their name until their portfolio grows larger, then transfer them into an LLC later.

[Anthony Dupre]

@Jake Baker 

Hi Jake,

If she does that, would it trigger the due-on-sale clause? and have some Tax revaluation ?

[Alecia Loveless]

@Christine Aledam I've been investing for decades in various forms and do not have an LLC. I have insurance as the others have said.

That being said I keep all the records for each property separately and have separate checking accounts for each.

It was only last year when I reached 7 properties and 25 units that my CPA recommended I get a bookkeeper. Until then I had been doing it myself but he felt it was time for an upgrade.

My new bookkeeper initially thought the multiple checking accounts was weird but now she has come around to seeing how easy it is to get detailed reports and information about each individual property this way as opposed to having one operating account for all properties.

I think with the new reporting requirements for LLCs and the annual cost associated with them in California this is a waste of money for you. Not only will you have the fee of $800 but you will have to file additional tax documents each year.

[Nicholas L.]

@Christine Aledam

just curious why you plan to self-manage.  I'd hire a PM.  it frees up your time for more valuable activities.

[Christine Aledam]

Quote from @JD Martin:

Quote from @Christine Aledam:

Hi BP Crowd!

This is my first time posting, and I'm seeking some guidance. I currently reside in San Diego, CA, and I am in the process of purchasing two properties in Henderson, NV, in my personal name. My question relates to when and how to structure a business account. By "business account," I'm referring to setting up an LLC as well as a business bank account.

My goal is to expand my real estate portfolio by acquiring approximately two properties per year. I plan to self-manage these properties and intend to operate my portfolio as a business, tracking all income and expenses while avoiding the commingling of personal and business funds. I will also be tracking expenses related to repairs, maintenance, travel to and from NV, hotel stays, meals, gas, and other regular business costs.

In the long term, I aim to purchase additional properties under the business name, but I understand I need to establish at least two years of income and credit history before doing so.

The issue I'm encountering is that my accountant has not provided any guidance on how to structure this scenario. Instead, he seems focused on discouraging me from setting up an LLC due to the fees associated with California. How should I proceed with structuring this plan? Am I not asking the right questions, or should I consider finding a new accountant?

Bonus question: Should I execute the leases under the business name and tenant’s name, or should the leases be in my personal name and the tenant’s name, considering the loan is in my name?

Thank you for your time! 

Until the business has enough assets to matter, it really doesn't matter all that much. You can just do a DBA (doing business as) in order to be a "business", since you're still going to have to personally guarantee these home loans. I own a lot more than 2 homes and all these years later still have never bothered with LLCs - I just keep really good insurance. You don't need an LLC to be an actual business, and an LLC isn't a guarantee that someone won't be able to go after your personal assets as they're "pierced" all the time by decent attorneys. Your accountant probably sees your idea of going forth this way as a waste of money, and without knowing what those costs are in California I'd probably agree with him.

Thank you! This helps! I never considered doing a DBA but that makes sense. Are all of your leases between tenants and your personal name or the DBA name?

[Christine Aledam]

Quote from @Nicholas L.:

@Christine Aledam

just curious why you plan to self-manage.  I'd hire a PM.  it frees up your time for more valuable activities.

 These properties are new builds.  Once I get tenants in, there will be very little to "manage" for the time being.  I work remote for my W-2 so it should not be that hard to begin with.  Once my portfolio grows, then I would consider it.   

[Allan C.]

@Christine Aledam LLCs will affect your future loans/refinance so you can't simply just buy in your name and operate as LLC. Single owner LLC also doesn't protect you as you think, and you're more than likely going to commingle everything and ruin any separation of entity.

Short answer to your questions is if you have a properly set up LLC then all transactions (lease agreements, invoices, etc) are under the entity name. But you are many steps away from this so please do more research on LLCs. Lots of threads on this forum and cheap books you can buy.

[JD Martin]

Quote from @Christine Aledam:

Quote from @JD Martin:

Quote from @Christine Aledam:

Hi BP Crowd!

This is my first time posting, and I'm seeking some guidance. I currently reside in San Diego, CA, and I am in the process of purchasing two properties in Henderson, NV, in my personal name. My question relates to when and how to structure a business account. By "business account," I'm referring to setting up an LLC as well as a business bank account.

My goal is to expand my real estate portfolio by acquiring approximately two properties per year. I plan to self-manage these properties and intend to operate my portfolio as a business, tracking all income and expenses while avoiding the commingling of personal and business funds. I will also be tracking expenses related to repairs, maintenance, travel to and from NV, hotel stays, meals, gas, and other regular business costs.

In the long term, I aim to purchase additional properties under the business name, but I understand I need to establish at least two years of income and credit history before doing so.

The issue I'm encountering is that my accountant has not provided any guidance on how to structure this scenario. Instead, he seems focused on discouraging me from setting up an LLC due to the fees associated with California. How should I proceed with structuring this plan? Am I not asking the right questions, or should I consider finding a new accountant?

Bonus question: Should I execute the leases under the business name and tenant’s name, or should the leases be in my personal name and the tenant’s name, considering the loan is in my name?

Thank you for your time! 

Until the business has enough assets to matter, it really doesn't matter all that much. You can just do a DBA (doing business as) in order to be a "business", since you're still going to have to personally guarantee these home loans. I own a lot more than 2 homes and all these years later still have never bothered with LLCs - I just keep really good insurance. You don't need an LLC to be an actual business, and an LLC isn't a guarantee that someone won't be able to go after your personal assets as they're "pierced" all the time by decent attorneys. Your accountant probably sees your idea of going forth this way as a waste of money, and without knowing what those costs are in California I'd probably agree with him.

Thank you! This helps! I never considered doing a DBA but that makes sense. Are all of your leases between tenants and your personal name or the DBA name?

 Yes, all of our leases are in the name of my business (Skyline Properties) & myself as owner of the business. Same thing with bank accounts, utilities, etc. This allows someone other than me (an authorized business representative) to do business on my behalf rather than limiting everything to myself. 

[Katie Balatbat]

@Christine Aledam

You may be having difficulties, as this is often a conversation had at the attorney level, usually in conjunction with the LLC. Most LLCs are set up for liability protection or similar non-tax reasons, and especially in CA, the penalties for "non authorized" practice of law are steep that a lot of CPAs will not even form the LLC for their clients.

There are several considerations that can go into the analysis of whether you need an LLC or whether a large insurance policy will suffice. Will depend on several factors like the type of property, type of tenants, your risk tolerance, other assets you own, your estate planning, laws where the property is located, etc. Same goes for number of LLCs and what to fund them with, since bear in mind that CA tends to be more cumbersome and expensive to have LLCs than other states.

California is generally more cumbersome than other states when it comes to taxes and filings. Even if you create a non-CA LLC, if you are managing the business from California, you will likely be deemed to be "doing business" in California and therefore likely subject to CA taxes. California charges a minimum tax of $800 a year per LLC, and more if you have gross receipts in excess of $250k. So, if you create an LLC in another state, you will likely need to register it as a foreign LLC in California. Though, this process will be the same for the other state (if you created a CA LLC you may need to register it as a foreign LLC in the state in which you are doing business/holding property). This means that you will probably need to pay registration and filing fees in at least 2 states if you don't buy CA property as a CA resident.

Any lawsuits should be limited to the assets of the LLC and not your personal assets (assuming you run the LLC appropriately and the corporate veil is not pierced, some debate as to SMLLC). But, an LLC will not limit you from liability in total. You can still lose your investment in the LLC. Or, a charging order may be granted. If you have a loan, you may wish to look into due-on-transfer clauses.

If you're going the umbrella insurance route, perhaps see if it will cover you for several things including just the routine slip and fall (like mold or earthquake). You'll also want to ensure you have a good property manager to look after the upkeep of the property if you are not there to notice anything deteriorating or which may need attention.

Creating an LLC in California could cost you a minimum tax of $800 every year. You would have ongoing filing requirements with the State and would need to keep business records and documentation. California does not recognize series LLCs. You'll also want to coordinate with your estate plan, and consider getting an estate plan if you do not yet have one in place.

These are all things you will want to discuss with your attorney and CPA. If you need references for either of them in San Diego, let me know.

*This post does not create an attorney-client or CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

[Basit Siddiqi]

If the purpose for the entity is liability protection, you should be having a conversation with an attorney.

If the purpose for the entity the accountant should be able to provide any feedback if there is any tax saving opportuities with the LLC formation.

Best of luck to you

[Drew Sygit]

Get a DBA and use to open a business bank account.

Have your properties "hire" the DBA to manage your rentals and collect rents.

Most states require a lease to identify the owner of a leased property, whether a person, trust, LLC, IRA, etc.

Landlord = Lord of the Land = Owner per deed

Agent = someone legally representing the owner

Property Manager = Agent

[Jason Malabute]

Hi there,

Just because you're doing business in Nevada doesn't mean California won't require its share. If you're a California resident, the state will still expect you to pay its annual franchise tax for your LLC, even if the LLC holds properties out of state. For example, in my case, I invest in properties in Atlanta and previously owned properties in Indiana. Here's how I handle it:

• I have an LLC registered in California, and I pay the $800 annual franchise tax to the state.

• My California LLC serves as a holding company for my out-of-state LLCs that own the individual properties.

This structure keeps things organized while ensuring compliance with both states’ regulations.

As for your bonus question, it depends on how the property was purchased. If the LLC purchased the property, then the lease agreements should list the LLC as the landlord. If the property is still held in your personal name, then your name would be used on the lease agreements. Aligning the name on the leases with the legal ownership of the property is critical for both legal and tax purposes.

[Ashish Acharya]

@Christine Aledam LLC doesn't give any extra tax benefit for now. Lenders will probably will not allow you to close normal loans under the LLC. That is why your accountant is not super excited.

Start by tracking property income and expenses through a separate bank account in your personal name to avoid commingling funds.

For now, robust insurance can provide liability protection, with an LLC added later as your portfolio grows, balancing California's fees with liability needs. Leases should match the loan ownership—use your personal name until properties are transitioned into an LLC. If your accountant isn't providing strategic guidance on structuring or tax optimization for real estate, consider finding a real estate CPA to ensure your long-term goals are met effectively. Focus on simplicity now and scalability later.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

[Anthony Dupre]

Hi everyone,

I often hear advice like, "Form an LLC later when your portfolio grows." But how can you transfer a property into an LLC later without triggering the due-on-sale clause? Is this even feasible?

Happy Thanksgiving to everyone! Thank you!

[Rick Trivedi]

https://www.doorloop.com/blog/transfer-rental-property-from-... is a good resource.

@Anthony Dupre depends on the lender. one possible way to avoid due on sale is to time it with Refi.

@Christine Aledam if you are planning to invest in Vegas or even otherwise in a different state with the mindset of growing the portfolio, might be best to do it under LLC. Even though there are a lot of arguments around whether LLC truly provides a protection, in the end, having it gives you a possibility... rather than not having it at all. Assuming it will be Single Member LLC (you as a member/manager), it will come back on your schedule E anyway, so only thing you loose is $800 in california and bit more of paperwork but that preps you for future.

Note - this is a very high level advise and mostly a personal preference. It can be argued either way. But as I mentioned, IMO you dont loose a whole lot by having it and stand a chance to gain for little extra cost.