Running Income and expenses through an LLC
Hey everyone, I've been told a million times to start running my income and expenses through my LLC. What is the purpose of this? I am worried about running it through my business and then becoming less "bankable" to lenders when asking for a HELOC, loan, etc since I will not have had 2 years of rental history within my same account. Was just turned away from a HELOC because I dont have two years of rental history for my assets since my first asset I bought was in May 2021.
Thank you and Happy Holidays!
@Joe Stout if you have an LLC and that LLC owns this business then yes your income/expenses should "run through your LLC".
From an asset protection standpoint the purpose of an LLC is to separate your business from you personally. If your business gets sued, they can't go after you personally. If you personally get sued they can't go after your business. If you are not correctly running your books through your business a good attorney could "pierce the corporate veil" removing this separation from yourself and your business.
From a tax perspective, unless you have an S or C corp, your LLC is a disregarded entity, therefore its taxes get passed to your personally. If you were denied because you don't have 2 years rental history, is seems it would only help meet this 2 year rental history if you would have been running through your LLC (not to mention the other reasons I discussed) - Disclaimer - Not a CPA or attorney.
#3 BRRRR - Buy, Rehab, Rent, Refinance, Repeat Contributor
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#3 BRRRR - Buy, Rehab, Rent, Refinance, Repeat Contributor
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You do this for ease of record keeping and not to piss your CPA off
@Lucas Miles Thanks for fully answering my question and helping me understand!
You could just get insurance. I do have a holding company (an S Corp) which manages 2 LLCs, one is a Texas series LLC which holds long term rentals in that state, and the other entity is a Florida LLC, which holds property in FL. We are running short term rentals and wanted the asset protection. But we had purchased a lot of houses conventionally before we decided to use the LLC. It does get much more complex in terms of accounting and business banks, business credit.
I use DSCR loans now, which use the cash flow of the rentals. Lenders do pull our personal credit, but they only report to personal if we default. Commercial appraisals are more expensive, insurance is pricey. But the corporate structure has different tax benefits that make the extra work palatable. When you are done with the 10 conventional mortgages…even at number 6 it gets onerous to keep enough reserves and to jump through the hoops for regular mortgages. The paperwork is easier for DSCR mortgages. The rates are higher, and down payments are also higher.
If the property is held in an LLC, income and expenses should run through an LLC bank account.
If the property is held by you personally, income and expenses should run through your personal bank account unless you are using an LLC to act as your property management company.
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#2 Managing Your Property Contributor
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#2 Managing Your Property Contributor
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@Joe Stout you're confusing two different issues.
If you run eerything through your LLC of which you are the sole owner, it all flows through to your personal 1040 via Schedule E.
Go speak with a tax professional.
@Kerry Baird I'm actually at 6 deals at the moment, and have 5 properties since one of them was a flip. I completely understand that. DSCR loans seem great and feasible if Im using OPM, but really stink when using my own money because of the high cash needed for down payment. Appreciate your comment! Also, any reason that the holding company is an S corp?