Recommendations on how to manage the finances of my real estate investments

17 Replies

I am in the process of buying my first property. I will be setting up an LLC as well. How do most people manage the money for their properties? Should I setup a separate bank account and have the money flow in and out of that account? If so, when I purchase more properties should I have separate accounts for each?

Thanks for your advice!
Mike

Mike: I have three different accounts. I have one account dedicated to security deposits. In Florida they may not be comingled with other funds. I use one account and put all security deposits from different properties into it and then when a tenant leaves I draw money from that account to pay the tenant what is owed to them. I have a separate account I use (a savings account) where I deposit rents. When I need to pay bills I move funds from the savings account to the third account (checking) and to pay them. I urge you to hold onto your cash flow for various expenses (which may or may not be planned). Within the last few months I put a new roof on one rental and new A/C units in three other rentals. I was able to simply write a check for these expenses because I saved all the income. Poor planning can put one in a bind quickly...so hope for the best, plan for the worst, and save save save. You will never see a guy go broke with a huge savings account:)

p.s.---read and learn your landlord tenant laws.

John Thedford, Real Estate Agent in FL (#BK3098153)

The rule of thumb is that each investment property should be owned by a separate entity (LLC, S-Corp, etc.). Then, for each entity you have a separate corporate checking account and separate income tax reporting. No co-mingling of assets. Me personally, I let each of my three entities own two properties, plus I own two properties in my own name. Only reason is that it gets too costly and time-consuming to manage all those separate checkbooks and having my accountant prepare all the income taxes.

Originally posted by @Judy P. :

The rule of thumb is that each investment property should be owned by a separate entity (LLC, S-Corp, etc.). Then, for each entity you have a separate corporate checking account and separate income tax reporting. No co-mingling of assets. Me personally, I let each of my three entities own two properties, plus I own two properties in my own name. Only reason is that it gets too costly and time-consuming to manage all those separate checkbooks and having my accountant prepare all the income taxes.

 Judy this is real estate investing. There are no rules of thumb. I hope you didnt pay somebody for that incorrect information that you are sharing with somebody that is about to make one of the largest financial decisions of their life. I own 26 units between 6 properties and Im closing on #7 on June 1st. I have sold four properties. Every RE deal I have done was in my name personally. I have never filed for and set up a separate entity. I have one checking account that pays the bills for every house. I have a savings account too. I have been doing this for 15 years. Am I doing something wrong? 

Aren't you concerned about litigious tenants and your exposure since all your properties are in your personal name?

Or, if you get into a serious auto accident and get sued. You can kiss those properties goodbye if they are in your own name.

Would umbrella liability insurance help in this case ? As I understand is we have sufficient umbrella insurance we do not need an LLC for each property.

Originally posted by @Judy P. :

Aren't you concerned about litigious tenants and your exposure since all your properties are in your personal name?

 I have enough liability insurance to cover all of my assets. It costs me a lot less time and money than maintaining several LLCs. If Im sued they can only take so much money from me. How does a bunch of different LLCs protect me from a lawsuit? Do you have a background in tort law?

I personally have found that LLC have not be worth it for me. Therefore we just keep them all in our name and have enough umbrella to cover everything.

Originally posted by @Jane A. :

Would umbrella liability insurance help in this case ? As I understand is we have sufficient umbrella insurance we do not need an LLC for each property.

 That is true Jane. Some people spend a lot of money on LLCs and some spend a lot less on insurance. I am one of the latter. 

Originally posted by @Judy P. :

Or, if you get into a serious auto accident and get sued. You can kiss those properties goodbye if they are in your own name.

Do you think if you were found negligent in an auto accident and you had a bunch of LLCs set up for your different properties and the judge/jury wouldn't get to every one of your personal and "corporate" assets? If you do, you need to fire your attorney and give me half of what you pay him and what you pay to maintain all of your LLCs. Best of luck to you. There is no level of protection that an LLC can provide when it comes to negligence. Its all fair game.

Moreover, insurance company which provides umbrella insurance will provide an attorney to protect us and money it will pay

Thanks all for the advice. For those debating the pros and cons to liability and LLCs, you might want to listen to podcast 109. I found it very helpful. 

Thanks

Mike

Agree with Michael - there was a podcast dedicated to this very subject. Why take guesses? Consult the podcast and then make your own determination then. I found the podcast to be illuminating. Yes, it's one perspective but it makes you think.

Question: do you think Donald Trump keeps all of his properties in his own personal name?  Or, perhaps, he has each property in a separate entity?

@Judy P. and @Rob Beland , I own several rentals and most are in a single Sub S Corp. I actually prefer an LLC but since I have been doing this over 20 years I have a lot of properties in that company, moving things around now would be a tax nightmare. There is protection to be gained by having property in a corporation and even more from using an LLC but it would be a nightmare for me to have a company for each property. I buy lots of insurance and have an umbrella policy. The idea of doing 25 separate corporation reports, 25 checking accounts, 25 tax returns, 25 annual meeting and minutes, keeping track of 25 corporate books, etc would be a nightmare. You cannot count on a corporation or LLC to protect you from liability. I have written several threads on this. You are still personally liable for any act you do personally if you self manage. Example you work on furnace and kill someone from carbon monoxide poisoning, or drive drunk etc. It is harder to get property out of an LLC especially if you have more than one partner. All in all an LLC will provide more protection but not in all cases. Insurance helps but when you have a major claim filed the insurance company will do all it can to not pay the claim, it makes them more money that way. Always maintain a separate account for rentals separate from personal and run everything through your business accounts. Your accountant will thank you. If you have an LLC and co-mingle money from your LLC it is about worthless and they can pierce the corporate veil. Good luck on your investing.

And on that note, I'm out of this discussion.

Originally posted by @Judy P. :

Question: do you think Donald Trump keeps all of his properties in his own personal name?  Or, perhaps, he has each property in a separate entity?

 Donald Trump is such a whack-a-doodle on so many issues, I wouldn't hold him up as an example of anything, to be honest.

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