How do you structure your STR business if you have more than one?

Question

Hi all,

I currently own 2 STRs properties (1 in Seattle, WA, and 1 in Big Bear City, CA), Both companies have a  separate LLC, and on top of that, I have another LLC that I use as a holding company for the two LLCs above. My question is, should the income go to the two STR companies or should it go to the holding company instead? And how do you pay yourself?

Thank you all!

Nick

Sherief Elbassuoni · Answer

@Nicholas Chan, good question for your CPA.

I typically put income of STRs in one account. LTRs in another account, and so on and so forth

Sean O'Keefe · Answer

@Nicholas Chan it's common for LLC per property and a holding/parent company, but I think there are 2 sides to this question for reporting and tax purposes. 1.) How do you want to see income/expenses for analyzing the performance of the two STRs 2.) What would your CPA like to see for tax purposes? I'd suggest recording the income and expenses separately for each STR so you can run your metrics on cashflow/profitability and your CPA can then use this to roll up the revenue to the holding company/parent.

At the end of the day, if you do the opposite and record everything for both STRs in holding company it will be very difficult to analyze the performance of each property separately and for you to go back and split everything our between the 2 properties if your CPA ask you to at the end of the year.

I know it can be painful to break down income and expenses by property, especially if you have 1 Airbnb/VRBO report or tax form that includes income or expenses for both properties. In this case, you could get help from the bookkeeper, invest in real estate-specific accounting/tax software (like, Stessa, Digb.com, or Quickbooks Online) and get separate bank accounts for each property / LLC. Either way, sounds like you'll want to run this by your CPA before the end of the year so it's not too much work to back track and fix 12 months of financial data all at once - this would be really painful :)

Michael Baum · Answer

Hey @Nicholas Chan, it sounds like you have a series LLC. One parent LLC with each child LLC under it.

Each house should have a completely separate accounts. Everything on its own for each property.

If you mix them together, it defeats the purpose of the separate LLC's.

You should check with your CPA to be sure as I am not a CPA. I have read quite a bit on the series LLCs and spoke with Scott Royal Smith.

Check out his blogs here on BP - https://www.biggerpockets.com/...

Zach Edelman · Answer

Would recommend reaching out to one of the following two members of Bill Faeth's "STR Super Team, and are experts with legal and tax advice:

Ryan Bakke AKA "Learn Like a CPA:" https://www.learnlikeacpa.com/

Jeff Hampton AKA "STR Law Guys:" https://www.strlawguys.com/

John Malone · Answer

@Nicholas Chan should flow up through the structure to protect the formalities

Ryan Xu · Answer

@John Underwood's reply is basically what I got from my tax people two. Structure it right, and all the same type of income can go to the same master account. Just bookkeep it correctly.

And @Nicholas Chan, Like the other, said, always checks with the CPA on the details.

Bob Stevens · Answer

Call your accountant, This is not the place to ask for tax advice

Sean O'Keefe · Answer

Love this answer @Sherief Elbassuoni

Michael Porche · Answer

Hey @Nicholas Chan!

This is a big CPA & Attorney question. And it really depends on your situation and what you are trying to accomplish. I know if you flow the funds through the holding company, it makes bookkeeping and end-of-year taxes easier and less expensive.

In regards to how you pay yourself, this is depending on how the LLC's are taxed. Are they taxed as a pass through entity like an S corp or are they taxed differently. Depending on your tax election will dictate how you will pay yourself. If it is a pass through entity then you can give yourself a pay roll either way.

The other is just "owner draws". Now take my advice with a grain of salt for I am not a CPA or an attorney. However if you need a connection I can connect you with someone who can answer these questions more thoroughly who is licensed and versed in the real estate investment space

Richard Elvin · Answer

To be blunt, you are asking for tax and/or legal advice from strangers on the internet. The answers given here will not effect any of us, but could will effect you. There are tax and liability consequences to what you do, and this will only effect you. Please ask your cpa and/or attorney. They are the only one's that know enough about your situation to compentently answer your question. For instance, you haven't told us enough about how the LLC's are organized to even start to answer the question. Is it a series LLC that has a holding company and two series that hold the properties? Or is it an LLC holding company that is then holding the two LLC's that hold the property?I'm sorry if this is overly blunt, but you are the only one that will pay the price if you take action based off of someone else's opinion, which may be completely right in their situation and completely wrong in yours. Best to you! I wish you great success in your endeavors!

How do you structure your STR business if you have more than one?

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