Structuring Entities (LLCs) with an Operating Company

[Matthew B.]

I've heard on the BP Podcast and several other investors mention they have holding LLCs for their rentals, a holding LLC for their flips, and an operating LLC that manages everything.

I'm just curious how this works, especially in regards to the flow of money. If anyone has this type of setup and would like to share how it runs, I would appreciate the info.

For example, does the operating LLC own the other holding LLCs or are they owned by you?

What does the flow of money look like when you purchase a new flip? I'm assuming the money would come from the operating company but the property would be titled to the holding LLC. Then renovation money would come from the operating LLC. But doesn't this defeat the purpose of the separation of assets if you're going to co-mingle everything?

[Matt Lane]

@Matthew B.

 So i spoke to an accounting firm a bunch of the people in the business use around here and this is what he suggested.

- 2 member operating LLC that everything flows up to

- Underlying LLCs will be owned by the operating LLC and yourself as the second member, but 100% of the profits flow to the operating LLC

He said checks for purchase/sale should come out of the underlying LLC ideally but he has clients where that doesn't always happen for a variety of reasons. Seemed to imply its not the end of the world if that happens from time to time.

He said you can use the operating LLC account and credit card to cover all other expenses which may not be applied to a specific underlying property, he suggested I get a corp credit card for this LLC as opposed to one for each.

He also said this structure is good if you ever look to get a mortgage on a property or bank loans in the future as there will always be one LLC (operating LLC) which will file a tax return and likely have income as opposed to several LLCs some of which profit one year and lose other years and are erratic. He claimed banks like the simplicity and transparency of a setup like this for analyzing everything when issuing a loan.

Not sure if this helps or if anyone else has any input but i'm likely going to proceed ahead with this unless i hear anything better