Collect rent under an LLC if I own the property personally?

Question

Hey All,

I am in the process of aquiring my next rental property and decided to finally put this one under an LLC. We have a dedicated bank account, insurance policy and the property will be held by the company.

Now my question is, can I collect rent from my other rentals under this LLC? I have previously just collected the payments directly to my personal name since that is what the deed is under as is the insurance policy. Just want to make sure I am not creating a tax nightmare by switching it up.

Scott Smith · Answer

@Steve G., it sounds like you have multiple properties based on your OP. You're off to a good start collecting rent under an LLC for your newest property--and yes, you can absolutely do this when you own the property yourself.  But if I'm reading this correctly, it sounds like you have other properties that you're holding in your personal name. This is a BIG no-no.

What you may want to consider is using a Series LLC structure. Series LLCs use a parent-child structure, meaning you start with one "parent" LLC that allows you to set up as many "children" LLCs beneath the parent as you like. My clients tend to use separate "child" LLCs for each asset. So if you have three rental properties, each property would collect rent under its corresponding LLC. A lawsuit involving one property cannot touch the other properties, so it is the best Asset Protection you can buy at no additional costs. The bonus to this structure is you can easily add any future properties with some quick paperwork from your home computer. A qualified attorney can help you set this up and make the entity easier for you to manage.

You aren't set up for a "tax nightmare," either. For your set-up right now, you can complete your taxes the same way you always have -- what you would do is file a schedule E along with your personal return.

Jamir G. · Answer

@Steve G.  I know this was a question of yours three years ago but I’m curious to know how you made out? I am considering doing the same thing. Use my LLC to manage my properties that are deeded in my name. It seems like it should be fine for the LLC to act as property manager but I could be wrong.

Cara Lonsdale · Answer

ABSOLUTELY you want to separate your money from your asset!!!!!!!!

If your property passes through your personal taxes anyway, then there should be no tax implications, you may want to verify with your accountant.

When we set up our structure it was Trust --------> Money LLC -----------> Property LLC.

The attorney told us that you always want to separate your money from the the asset so that in the event that a Tenant sues you, YOU don't own ANYTHING.  If they sue the property, and win, they only have rights to the property (so you limit your liability to just that 1 property).  If they sue the money LLC, they get nothing because money can't harm anyone.  So, you may want to double check with your attorney who set up your LLC.

Steve G. · Answer

That is the idea.

Have the previous tenants start making checks out to the new LLC but the property deed, mortgage and insurance are still in my personal name. I believe it should be ok since I am a single member LLC.

Josh Bauerle · Answer

That’s not how the 20 percent deduction in the new plan works. It reduces your taxable profits by 20 percent, and the remaining profits are taxed at your ordinary rate.

There’s also no difference between owning them personally or in an LLC, you would get the 20 percent deduction either way.

Cathie Kovacs · Answer

@Scott Smith doesn’t having common ownership (the parent LLC) leave all the assets of the parent exposed when one of the child LLCs gets sued?

How many Schedule Es are required under the Series LLC structure? One for the parent (in summary for all children?) or separate ones for each child?

I consulted with a tax attorney last week about how to simplify the “separate  LLC for each property” matter and a Series LLC was not suggested. Sounds like I might need a better attorney. I’m looking to avoid having 10 different bank accounts (1 for each LLC/property) because life is already complicated enough, right?

Jessica Zolotorofe · Answer

I wouldn't suggest it for many reasons, accounting and bookkeeping only being one.

If you did want to do that, I would have the tenants make the checks payable to you, c/o the LLC, or I would at least enter into a management agreement between you and the LLC allowing them to collect rent on your behalf. That's even grey, but better.

I think the most important question would be why would you want to do that? How could that be beneficial?

Cara Lonsdale · Answer

I think things are being confused.  Let me see if I can try to provide some clarity.....

When you say that the property is held in your name, do you mean to say that your name is on title, or that your name is on the loan that secures the title?  There is a big difference.

If the LLC owns the property, and the property is "held" in the LLC, you are indicating that the property is titled in the LLC's name.

Now, if you are saying that the property is held in your own name, the title will have your name on the deed, not the LLCs, and having an LLC is pointless as it doesn't attach to the property in any way.

Now, if you are telling me that your name is on the loan that secures the property, but the title is deeded in the LLC's name, this is a possibility, however, a risky one as it leaves you open to have the Lender call your note due if they were to ever stumble across the knowledge that you transferred title to an entity.  This is in your loan docs when you sign them.  The Lender has the right to call the note due in full if you violate it.  In essence, it's like transferring the property to someone else (or something else) without their permission, which is required unless you have an assumable loan without qualification.

So, going with the assumption that you have the property in an LLC and either do not have a loan on the property, or the loan attached is also in the name of the LLC, then you can set up a structure where you first create a Trust.  Then you create a Holding LLC, which holds the money (all your rents go here, and expenses can also be paid out of this account), then you create a separate LLC for each property.  The Trust is a member of all the LLCs, and your money is separated from your assets.  If you don't know anything about doing this, I would suggest going to an Attorney who specializes in this kind of thing so that you make sure to get it done correctly.

OR if you are the one personally securing the loan that is attached to the property, you would most likely be better off getting an umbrella policy through your homeowner's insurance for the liability associated with having multiple properties.  It will give you the business protection that you are looking for without compromising your position with the Lender by transferring the property into an LLC.

Angel McClinton · Answer

@Steve G. and @Jamir G.

It seems like most are saying this is ok if you have an agreement between yourself and the LLC (property manager).

However, @Scott Smith's reply said it was a big no-no if property is held in personal name.

Can someone please provide clarification or what set up you deemed was best to accomplish this?  Thank you in advance.

@Cara Lonsdale - Was your recommendation was to put personal property into a LLC as first step?  I understand and appreciate you sharing the structure you use.  It makes perfect sense.

Collect rent under an LLC if I own the property personally?

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