I currently have 3 rental properties. I worked with an attorney to set up two LLCs.
The first LLC is a "holding" LLC. This LLC owns the properties. I plan to place 4-5 properties into this LLC and will then create other holding LLCs for each additional set of 4-5 properties I purchase.
The second LLC is a "management" LLC. I use a professional Property Management Company to manage our properties (which I love), so my management LLC exists to simply handle all business and funds. I set this up primarily so that I didn't need to set up separate bank accounts in the future for each holding LLC I create. I want to be able to run all my rental property business through one bank account.
However, my lawyer and CPA are not in agreement as to which LLC should sign the W-9 with the professional Property Management Company that I work with. My CPA thinks the holding LLC should sign the W-9 and my lawyer thinks the management LLC should sign the W-9.
I wanted this to be simple. Now I'm really confused. Help!
Well thankfully for your lawyer and your accountant you have now created such a complex corporate structure that your closest trusted advisors can't even figure out how to balance a checkbook. I hope you aren't paying them by the hour to argue back and forth about this @Kent Julian
A couple questions... Do you have an outside company that manages your properties? You mentioned a "management LLC" and you also mentioned a professional property management company. If you are hiring a management company to manage your properties why do you need a separate entity to be a management llc?
It really doesn't matter how many properties you own. You could own 549 properties and use one checkbook. You now only have one account to worry about. What makes you think you need all these entities and bank accounts? I'm guessing your accountant and your attorney but these are the two people that can't figure out who signs a W-9.
If you want it to be simple, fire your accountant and your attorney. Open one checking account. Have your PM collect the rents and deposit them in the bank. Every month pay your bills. Pay your PM company every month. BOOM!
@Kent Julian First things first: from my experience, conversations with lawyers, and everything I've read, every LLC you create needs to have an "actual business purpose" which means having an EIN, bank account, contracts, etc. You will also need to appropriately capitalize each LLC you own. The purpose of this is to show, in the event of a lawsuit, that the LLC has an actual business purpose and is not used merely for asset protection.
Before answering your question, I'd want to know if the holding LLCs are contracting with the management LLC or if the management LLC owns the holding LLCs.
@brandonhall and @robbeland - I think both my CPA and Real Estate Attorney have my best interest in mind, but I agree I'm really confused.
@Brandonhall - both LLCs have EIN, contracts, and Operating Agreements. My management LLC has a bank account...the holding LLC does not. Also, the holding LLC are contracting with the management LLC. The holding LLC owns the properties.
Man this is why BP is like Facebook for me. I can't get off of this website without trying to figure out how people get into these situations. So Kent has a management LLC that hires a management company to manage property owned by a holding LLC. The holding LLC has no checkbook so it's not paying the management LLC to actually do anything. And you need to give somebody a W-9? The holding LLC doesn't pay anybody since it has no checking account. There is no W-9 and therefor no 1099. No money changes hands. Consider this @Kent Julian , you are the owner of all of your LLCs. You should sign the W-9. Problem solved. What do you think @Brandon Hall ? I should charge by the hour for this stuff...
Thanks @RobBeland. It really made sense early on.
BTW, I do have an outside management company management my properties. They are great. The LLCs I have are:
* Holding LLCs - to own and hold the properties / that's it
* Another LLC to oversee all the business and finances.
Probably will just go back to holding LLCs only.
Good luck @Kent Julian
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