Multiple LLCs and Handling Loans/expenses

Rehabbing & House Flipping
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Multiple LLCs and Handling Loans/expenses

Jonathan D.
Millersville, MD · Member since 2017 · 3 posts · 0 votes

Hi All,

My partner and I have started our businesses flipping homes. We have our main LLC (call it LLC-1) and then each property we purchase and flip gets their own LLC (for risk reasons). We have a general loan for all of our business activities which has been deposited into LLC-1 bank account. When we do work on each flip, we pull the funding from LLC-1 to pay for expenses and track everything separate. So this poses a couple questions:

1. Do we need separate bank account for each LLC we register or can it be centrally managed by a single one as long as we track expenses

2. How do we allocate the interest from the loan as a carrying cost to each of the flip properties? 

3. How do we account for overhead and general operating expenses? i.e. we have a business dinner, we pay for cell phones, etc. Since our main LLC (LLC-1) isn't really doing anything (no properties will be associated with it), how do i distribute those expenses against the flip properties?

Thanks! 

Jonathan

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Michael Seeker
Investor · Louisville, KY · Member since 2011 · 1k+ posts · 1k+ votes
9y

@Jonathan D. - I have a similar set up with my rental properties, however I do not have any loans to my LLC that handles transactions. When I have an expense that would apply to multiple operating LLC's, I'll split that expense based on the number of units in each LLC.

The loan makes things a little more complicated, but you should be able to account for how much debt each individual LLC is utilizing and split out the loan payments accordingly.

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  • Michael Seeker
    Investor · Louisville, KY · Member since 2011 · 1k+ posts · 1k+ votes
    9y

    @Jonathan D. - I have a similar set up with my rental properties, however I do not have any loans to my LLC that handles transactions. When I have an expense that would apply to multiple operating LLC's, I'll split that expense based on the number of units in each LLC.

    The loan makes things a little more complicated, but you should be able to account for how much debt each individual LLC is utilizing and split out the loan payments accordingly.

    1Reply
  • Bob Okenwa
    Real Estate Agent/Investor · Peoria, AZ · Member since 2016 · 2k+ posts · 2k+ votes
    9y

    @Jonathan D.

    Let me begin with "I have no training as a licensed accountant". It sounds like LLC-1 is the holding company for the other LLC's. You should have an extensive talk with a lawyer and an accountant to keep everything straight as this strategy seems a bit convoluted. To answer your questions:

    1. You should consider keeping everything separate and commingling funds as this chips away at the "Limited Liablity" of each company. If funds are commingled, a lawyer can state that the companies that have commingled funds are one in the same and possibly go after LLC-1 and the money associated with.

    2 & 3. Get a bookkeeper or learn to use QuickBooks to keep track of all expenses and keep all expenses separate and accounted for.

    Like I said, I'm no legal or financial adviser or expert. You'd be much better off consulting with local attorneys and accountants on this matter and set up a strategy that matches your business needs.

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  • Jonathan D.
    OP
    Millersville, MD · Member since 2017 · 3 posts · 0 votes
    9y

    @Michael Seeker. That is what i was thinking.... As long as I track my expenses accordingly and attribute them based on the number of LLC at the time of expense, it should be fine. I am doing the same thing with the debt.... i.e. I have a $500,000 loan @ 7.5% and I use $100,000 on Invesement Property A for 1 year, I can attribute the interest of $100,000 for 7.5% for 1 year to that property as an expense and deduct it from the profit when I pay interest on that loan.

    @Bob Okenwa . I currently am using Quickbooks, and I have set up an separate entity for each LLC. That is an interesting point on co-mingled funds. I would prefer to not open up a bank account for each LLC. What has everyone else done to keep this separate?

    Michael Seeker Investor from Louisville and Memphis, TN

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  • Michael Seeker
    Investor · Louisville, KY · Member since 2011 · 1k+ posts · 1k+ votes
    9y

    @Jonathan D. - I do have separate bank accounts for each LLC and all funds related to each LLC reside in their respective bank accounts. The operational entity does things like receiving rent payments and paying contractors and then distributes or is reimbursed by each LLC. It does not have any debt, nor does it generate any profit or loss. It requires some work to keep everything in the right place, but it also helps ensure that the numbers for each entity line up correctly and that all expenses are accounted for.

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  • Jonathan D.
    OP
    Millersville, MD · Member since 2017 · 3 posts · 0 votes
    9y

    Since our business in flipping properties and not holding onto them for investments, I am guessing that we will have to determine if it is worth opening up bank accounts for each LLC (which will only be for about 4-6 months each) and then closing them to avoid the co-mingling of funds?

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  • Michael Seeker
    Investor · Louisville, KY · Member since 2011 · 1k+ posts · 1k+ votes
    9y
    Originally posted by @Jonathan D.:

    Since our business in flipping properties and not holding onto them for investments, I am guessing that we will have to determine if it is worth opening up bank accounts for each LLC (which will only be for about 4-6 months each) and then closing them to avoid the co-mingling of funds?

    I'm not sure how you get any benefit from owning each property in a separate LLC. If some scenario came up where you were being sued I don't think an attorney would have any difficulty proving that these are not separate entities.

    You may want to look into S-Corps, as I seem to recall that being the preferred investment vehicle for flippers.

    From what you're describing I don't think you're achieving any benefit and you're certainly incurring extra expenses and headaches by titling each property in separate LLCs.

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  • Account Closed
    Jacksonville, FL · Member since 2015 · 183 posts · 22 votes
    9y
    Originally posted by @Jonathan D.:

    Hi All,

    My partner and I have started our businesses flipping homes. We have our main LLC (call it LLC-1) and then each property we purchase and flip gets their own LLC (for risk reasons). We have a general loan for all of our business activities which has been deposited into LLC-1 bank account. When we do work on each flip, we pull the funding from LLC-1 to pay for expenses and track everything separate. So this poses a couple questions:

    1. Do we need separate bank account for each LLC we register or can it be centrally managed by a single one as long as we track expenses

    2. How do we allocate the interest from the loan as a carrying cost to each of the flip properties? 

    3. How do we account for overhead and general operating expenses? i.e. we have a business dinner, we pay for cell phones, etc. Since our main LLC (LLC-1) isn't really doing anything (no properties will be associated with it), how do i distribute those expenses against the flip properties?

    Thanks! 

    Jonathan

    0Reply
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