Revocable Trust with Rentals in Separate LLCs

[Corey G.]

Hello everyone. I own 5 properties. One personal, 4 residential rentals. I do not have my properties in LLCs yet but went to speak to a real estate attorney today who suggested that I create a revocable trust and then have 4 individual LLCs (one for each rental property) owned by the trust. From my understanding this will provide asset protection and ease of transfer for my beneficiaries if something was to happen to me. I have some questions that I wanted to ask anybody who has done this. 

1. I was told I need separate bank accounts to keep the LLC asset protection in place. I'm guessing I need business accounts under the LLC name for each property and tenants pay the LLC instead of me. I pay all expenses for each property out of each individual LLC account and not co-mingle the deposits or expenses with my other accounts? Is that right?

2. If this is the case, how do the profits get back to me? Do I have to leave them in each individual account? I'd like to invest them instead or take the profits to pay down the mortgages one at a time and I'm wondering how I would do that. Would I be able to set up a bank account for the Trust and have the money from each LLC transfer into the trust bank account and invest and/or payoff mortgages from there? I'm confused on this part.

3. I normally pay all of my property expenses through a credit card (for cash back rewards) and then pay it off at the end of the month. I'm guessing I couldn't do this anymore without having a separate credit card for each LLC. Is that right?

4. The attorney said I need to have reserves for each LLC so does that mean I need to have certain minimums in each bank account that I could dip into if needed? What kind of minimums are we talking? I'm guessing placing money back into the accounts from an external account would again cause problems? (Once again could I have a trust account set up for that or that wouldn't work?)

5. If I was to go purchase another property how are these LLCs looked at from an income standpoint by a loan officer? 

I would appreciate any advice or answers to these questions.

[Pamela Sandberg]

The attorney had it right - you want each property in a separate LLC, because this protects the assets of each property from the liabilities for the other. (For example: if a tenant sues on one property, the equity in another property couldn't be used to satisfy a judgment.) Yes, 4 LLCs is a hassle, and yes, you do need to maintain separate bank accounts for each one, but this is still an important legal protection. Umbrella policies and mortgages only get you so far.

And yes, the cost to maintain separate entities is almost non-existent. Unlike other states, AZ does NOT charge an annual fee for each entity, and your banking fees will also be minimal if you go with a good, reliable bank. The biggest problem is simply the hassle of documenting everything and separating the accounts. I can't speak to other states, but I will say that here in AZ, having a separate LLC for each property is good legal advice.