Updated over 9 years ago on . Most recent reply
separate LLC for self property management
What's up BP!
First of all, thank you Josh, Brandon, and all the great contributors for your tremendous knowledge!! Brief first post intro: I'm a B&H investor and have been reading & listening to BP for a while and gaining momentum. I live in KC and have several rentals, am currently constructing 2 townhouses, and am actively searching for more deals. Short term goal is 10 Class A/B self-managed rentals to capture historically low fixed rates creating a “passive” income base in addition to my great full time job. Bigger picture I want to find my niche and move into larger deals or more volume.
Now to my question...I have an umbrella policy and am looking to add LLC(s) for additional protection. Considering future rental portfolio growth, is a separate LLC for self-property management beneficial in addition to LLC holding companies? Assume I soon will have >1 LLC regardless of this question to limit equity per LLC. I see the PM LLC acting as the funnel for all incoming rent & outgoing expenses (1 checkbook, 1 debit card, etc) that regularly distributes profits to LLC holding companies AND keeps tenant interactions with an LLC that doesn't have assets. Downsides include trickier reporting of transactions between LLCs and other complexities/expenses. Would this make my accounting easier or unnecessarily more difficult? I already have a general CPA and a RE attorney but don't have good feedback on structure yet (currently seeking KC area REI CPA if anyone has suggestions!). Thanks in advance for your input or links to related posts.
Most Popular Reply
We own and manage 248 doors: 213 unit apartment, 14 unit apartment, 12 SFH/Duplexes. Also a 180 unit self-storage facility.
Our property management company is its own unique LLC and has no assets. The property management company collects all the revenue and distributes it to the "owners" which are the following:
For our SFHs and duplexes we use a Series LLC which is kind of like an umbrella LLC that lets us place each individual property inside an LLC without having to file a whole new LLC each time. It is kind of complicated. I believe we learned about it on the BP podcast, though I can't remember which episode.
Our self-storage facility and 14 unit apartment are each in their own LLCs.
The 213 unit apartment is owned by a partnership. My business partner and I own an LLC that is the General Partner for this partnership.
The most complicated thing about this setup is the series LLC. It is a new kind of entity and banks are not excited to deal with it. We've had to pay extra fees to let their attorneys review our documents. There are also some bookkeeping issues with it. Neither of those are insurmountable, but they do present challenges.
If we didn't have the series LLC, we'd probably still do separate LLCs for each property. And yes, it does make bookkeeping, bank accounts, insurance, and everything else more complicated.
It may be that all this layering is completely unnecessary. But, we've heard enough horror stories from the REI veterans that we've decided to layer up.
The advice to consult with the CPA and attorney are good.
I hope that helps.