Each property: its own LLC, Debit Card, HomeDepot Card, & Quickbooks file?

20 Replies

I'm starting to really expand my portolio with a lot of houses. As it grows I'm also creating more LLCs. Isn't this going to get overwhelming to have in my wallet a Credit Card, and Home Depot Card for every property? Then I also have to remember which house(s) in which LLC every time I make a card purchase.

Lastly I need to of course have a separate quickbooks file for each property (and in the cases of multiple property to one LLC, separate classes in quickbooks for each property within that LLC).

Sheesh!! Does everybody go through this same ordeal?

LOL, clever way to ask, use one LLC, get insurance! Life will be simple all the time, at the funny farm, where life is beautiful all the time having multiple LLCs.

There is no need for separate LLCs, one company can hold hundreds of properties, $10M in liability coverage should do most small investors. :) 

If you use a CPA to do your taxes, and I would imagine you do being an LLC, then you can easily setup all your LLC's in one company file, by linking every transaction you do to each LLC (class) that you setup. (You don't need an LLC for each individual property. Usually 3 properties to an LLC is Okay, but check with your account. You pay more taxes on LLC's)

You can setup our company that manages your LLC's as Let's say Matt's Properties, and then setup all your LLC's as a class. (Matt's Properties is just a company DBA Name that is holding all your LLC's) Once again this is okay if you have a CPA who will do your taxes for you and not go through a tax software program that is an add on to QuickBooks.

Now you can use your charge cards accordingly, but you will have to assign each purchase you put on that card to the correct LLC. (class)

You will be able to still balance your check book in QuickBooks normally and your credit cards, because all you are doing is linking each transaction you do to the correct LLC.

At the end of the year (or anytime you wish) you will run a Profit and Loss Report by Class and that will give you your bottom line per LLC.

Does this make sense to you?

Nancy Neville

Do you plan to put multiple properties into each LLC? Assuming so, you only need one credit card, one Home Depot card and one QB file for each LLC (not each property).

But, in general, you will find that as you acquire more properties, your bookkeeping efforts will increase and things will get more complex...

I would love to agree with you. It would be wonderful to put everything in one LLC. Unfortunately however, after about 250k of value, or even after 50k of value to be honest, it seems wise to cordon off by separate LLC. Keep in mind I was threatened with law suits this summer and it was very unsettling.

I do think however, that putting friendly liens on your property + insurance is honestly the ultimate protection. Multiple LLCs is not actually a protection. 

@Matt Liu  

What were the lawsuits about? If not confidential.

Injury. Just a threat. I recorded the debt on the property though so I should be good. Still freaked me out though so now I'm paranoid.

Originally posted by @Matt Liu :

I would love to agree with you. It would be wonderful to put everything in one LLC.

Not suggesting every property in one LLC. Depending on how much equity you have in each property, it may be possible (or not, depending on your situation) to group properties into LLCs so that you have fewer LLCs than properties.

But again, your situation may not allow that...

Make 1 mistake with those cards and your veil is pierced tying the finances of multiple properties together.  Are you personally guaranteeing those cards?  Wonder if that links them as well?

Bill has made the point many times and I'm in violent agreement with him, get an umbrella liability policy as it is far cheaper and much better coverage.

@Matt Liu I think You are trying to give yourself a heart attack or anziety with all the CC's, and especially multiple QBooks. One is enough to drive you crazy. Now, we are just starting but I have used QB's for several years in a corporation with up to 5 employees. So I use PO's by property ID, excel spreadsheets on each, insurance, and one LLC. That is enough fo me.

@Matt Liu  

First of all I'm not a lawyer and have no special expertise in this subject.  I am only repeating what I heard in a public presentation and in private consultations with real estate attorneys, and I may have some of the details wrong as well.   I am not even advocating this approach, only offering it up as food for thought, and I leave the due diligence to you.

Two lawyers who I heard speak recommended titling each property in a separate trust and making the beneficiary of these trusts an LLC which has you as the member.

By the way, as a preface, more than two lawyers specializing in real estate investing and liability protection that I have consulted have insisted that trusts offer no liability protection whatsoever. I have heard contradictory claims from one trust attorney and the general public, but I trust these guys more. The opinion that trusts offer no liability protection is why the beneficiary of the trust should be your LLC rather than you personally.

I will give an example to make it clear(er).... at the risk of carrying on too long and boring everybody.

Let's say you had 10 properties owned by "property1 trust", "property2 trust", etc. The beneficiary of the first 5 trusts could be Numero Uno LLC and the beneficiary of the second 5 trusts would be Numero Dos LLC. So now you could have two credit cards for all those properties instead of 10. One of those credit cards would be in the name of Numero Uno LLC and the other in the name of Numero Dos LLC.

Now the paper boy trips and falls on property1 and sues the owner of property1, which is the property1 trust. The beneficiaries of all your trusts are listed on a secret document called the Schedule of Beneficiaries. Since the Schedule of Beneficiaries is not publicly recorded there is nothing to prevent an unscrupulous landlord from changing the listed beneficiaries of the property2 through property5 trusts from Numero Uno LLC to Numero Dos LLC and backdating the document to before the accident. It is perfectly legal for the trustee (you) to change the schedule of beneficiaries at any time, but backdating it is the squirrely part. So now when you go to court they subpoena the Schedule of Beneficiaries and it will show Numero Uno LLC. Then they may subpoena the list of assets of Numero Uno LLC and that (updated) list shows only the property1 trust, since all of your other trusts and properties are now owned by Numero Dos LLC and are therefore protected from this lawsuit.

I have been told more than once that in practice, when the opposing lawyer sees how the property is titled they won't take the case because they know that their odds of winning a big payoff are small.

The legal fees for setting up the 10 trusts shouldn't be much more than for 1 trust because it's the same document with only the property addresses and dates changed. Once you register the trust with the state, there won't be an additional annual charge, whereas in most states there is an annual charge of from $100 to $500 for each LLC. So this should actually save you money in the long run.

I Like @Bill Gulley  answer on the part of liability insurance. 

I also like @Bill G. responce. more straight up, no lies. Let the Insurance Co. deal with it.

Each of my properties has $1m in liability on the fire policy (USAA allows that). I manage the income and expenses in property management software, by property and backed up to a hard drive and Google drive for each property.  I have a separate checking/savings account for each property for security deposits and rent payment. I put all expenses on one credit card for everything else.  Swipe the card, enter the expense against the correct property, scan the receipt to the correct property on the hard drive and done.  I will eventually add an umbrella.  

Originally posted by @Bryan N. :

Each of my properties has $1m in liability on the fire policy (USAA allows that). I manage the income and expenses in property management software, by property and backed up to a hard drive and Google drive for each property.  I have a separate checking/savings account for each property for security deposits and rent payment. I put all expenses on one credit card for everything else.  Swipe the card, enter the expense against the correct property, scan the receipt to the correct property on the hard drive and done.  I will eventually add an umbrella.  

 Bryan, 

1) how many properties do you have? 

2) Are they all in one LLC?

3) If all in one LLC, do you use that one LLC for the credit card?

Great question - I'm not anywhere near the point that I am considering LLCs, let alone multiple LLCs, but you have me wondering about insurance needs for newbie investors. I was just speaking to my neighbor - who owns the duplex next door and rents it out. He purchase the property from another investor who was sued by his previous tenant for slipping on the stairs with a railing that did not meet code. Have you kept yourself "protected" the whole time you have been investing?

I can't imagine any reason why you would put all of your properties in separate LLC's. That's just a waste of energy and money. In my opinion one LLC will suffice.

Originally posted by @Fred Heller :

I can't imagine any reason why you would put all of your properties in separate LLC's. That's just a waste of energy and money. In my opinion one LLC will suffice.

Easy answer is you can avoid law suits... lawyers don't sue people they don't believe they can collect against... getting a billion dollar settlement against someone with $10,000 in assets is worthless.

A simple search can reveal your assets... if 1 LLC comes back owning 3,000 properties, there's money there. But if it comes back for just that 1 property... meh, not worth it.

Sometimes the best defense is simply avoiding being a target for lawsuits.

Guys, this is what I'm trying to say: It's okay to have everything in one LLC AS LONG AS YOU HAVE DEBT on all the properties, plus insurance, plus and umbrella.

Do you agree? If so, then that's the way to go because it is much better for bookkeeping.

You can also use a technique called "Equity Stripping" to remove equity out of an investment property.  Making it less desirable for creditors to pursue.

http://www.investopedia.com/terms/e/equity-stripping.asp

However, as others have noted. You only really need one LLC with proper insurance coverage to sleep well at night.

Your best defense against liability is first, good management, then insurance, if these two aspects are taken care of, you will be bullet proof!

Each LLC must be capitalized with cash, not equity, to prevent the corporate veil from being pierced as it must stand on it's own as an entity, otherwise it is viewed as an empty shell.

Lawyers in RE and asset protection areas sell trusts and LLCs each time they touch documents or try to mesh entities together or fix issues, they get paid! Like finding a Chevy car salesman telling you to go buy a Ford!

Get creative and you'll increase your chances of screwing up, get too creative and you will screw up or you'll be paying for hands on management with your attorney and accountant.

Backdating documents is fraud, in any instrument.

Equity stripping with false liens or intent to deplete assets will get you in deeper trouble. There are accepted ways to conduct business, you need to follow the conventional path as closely as you can to reduce changes of your entity being disregarded with sham transactions. Conventional and accepted is insurance!

Before getting paranoid about holding properties, look at the real chance of your being sued, it's very small for a SFD type owner. The stories of big suits and loses are usually with large complex operations, not mom and pop. Those telling the stories usually have an interest in you following some convoluted plan, ask yourself, does this advocate of this plan have anything to gain? Legal work, more accounting work, will they be required in the future or can I totally manage things properly?

It wasn't until the 90s that LLC even became available, entities were C or S Corps, Partnerships, otherwise small investors held properties in their personal name. They had insurance, I've never heard of a mom and pop getting sued for a big chunk, I held properties personally and I never had any issue from liability that is spun as some big risk.

And, if your net worth is 10K, what are you protecting, your pockets aren't deep enough for an attorney to chase you. Just like landlords that don't go after lost rents, you can't get blood out of a turnip. Which is why insurance is best, they may go after your policy, but they will be fighting very deep pockets defending you. You need to carry enough too, if you are negligent (remember, you must be at fault) and your insurance  only defends up to your limits of liability. If you get sued (big if) for $1M and you have $500K, the company can just pay the amount and walk away, leaving you to defend the balance on your own! So, get an amount that keeps them at the table, 5 or 10M should do it. :)  

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