Checking Accounts for All?

Question

All - I'm hoping someone can help give me some advice on how to set up my bank accounts with some future LLCs, and which banks folks recommend.  I have two rental properties and am looking to put them into separate LLCs.  I manage these myself and would like to keep my bank accounts as simple as possible.

I see three options for setting up the accounts required for my LLCs and would love some feedback on what folks think or how they do it themselves:

Option 1 - For each LLC, I set up a checking and savings account.  I don't like this option because as we gain more properties, this will create A LOT of admin work.

Option 2 - I set up a third property management LLC that manages the monthly finances of the properties and pays for all repairs and admin associated with each property.

Option 3 - Instead of a PM LLC, I create a holding LLC that owns the individual property LLCs.  That holding LLC will then also manage all of the finances associated each property-LLC.

I've seen plenty of content out there about LLCs and the different strategies associated with them; but I've hardly seen any content regarding how to set up one's bank accounts.  Any pros/cons or other feedback that people have would be amazing.  Thank you so much!

Drew Sygit · Answer

@Blake Hege mimic what would happen if you hired a 3rd party PMC.

So, Option 3, but the PMC LLC doesn't have to own the property LLC's. The property LLC's just have to "hire" the PMC LLC.

David M. · Answer

@Blake Hege

Well, I wouldn't use a LLC in the first place, but that sounds like a different matter if you are already set on doing it.

the part about self-managing and pierciing your corporate veil is probably part of the facts and circumstances that go into determining if your actions have pierced your corporate veil.  I will say, as a layman, that it would make sense that you and your mgt entity would both be named in a suit anyway...

Option 2 and 3 are pretty much the same thing.  The holding LLC would have contracts with each subLLC to manage it --- basically its an in-house Property manager..

I think many would put about $1mil of current value (equity isn't the correct term since you are probably leveraging so your equity is really small) in each LLC to economize.  Yes, each LLC should really have its own bank account..  But, if you use a Mgt LLC, then the accounts of the LLCs holding Title should basically be dormant.  Then, in theory you can operate out of and brand your mgt LLC.

Yes, having lots of bank accounts can be a pain.  Even the frictional costs of leaving ~$500 in each account to avoid monthly banking fees will add up.

When you transfer the properties into the LLC's, remember to refinance into commercial loans under the LLC (you can't use conforming residential loans since legal entities aren't eligible).  If not, at least generate some paper to address who is drafting the mortgage payments and taking the interest deductions so you aren't co-mingling funds and/or using the LLC as an alter-ego.

Try to keep it simple.  The sales pitch for LLC's for residential properties just snowballs so that the attorneys and accountants get their recurring fees in my opinion.  Its been posted before on BP how in hindsight investors wished they never went the LLC route.

Hope this helps.  I'd be happy to chat if you'd like.  Good luck.

Chris Seveney · Answer

@Blake Hege

If you self manage you destroy all asset protection anyways so try and keep it as simple as possible.

Brendon Pishny · Answer

@Blake Hege

I’m not sure you need an LLC for each property but it doesn’t hurt. I do more of your option 2. I have a central LLC that I started with and still have a few priories in. Then I moved some properties to 2 other LLCs as I’ve grown. I collect rent in the first LLC and then disburse the money once a month. I also bill the holding LLC for any repairs or supplies. It’s a lot of bookkeeping but if you want the protection the LLC provides the accounts have to be kept separate. Also, one LLC per property would be a nightmare. I have 3-5 in each depending on value, how much equity and how mich risk I’m ok with. Hope some of that info helps.