Separate Bank Accounts Per Property
Member since 2021 · 16 posts · 12 votes
Separate Bank Accounts Per Property
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Rental Property Investor · Concord, NC · Member since 2016 · 1k+ posts · 3k+ votes
5y24 SFHs, 1 LLC, 1 checking account, 1 spreadsheet, apartments.com, 1 old pickup, 1 cell phone, 50 trusted professionals and contractors.
48 Replies
- Property Manager · Raleigh, NC · Member since 2014 · 729 posts · 596 votes5y
@Nicholaos Koufoudakis
Not sure why a different LLC for each property? I use 1 LLC for all my properties. But if you do have LLC per property, then I think you have to have separate bank accts.
- Member since 2021 · 16 posts · 12 votes5y
@David Korchak I think you may be correct but I am not 100%. When I spoke with my CPA I did ask him about using 1 credit card for all LLC's and he said that is absolutely fine as long as you are making sure to separate which expense goes where. I failed to ask if that can be my own personal credit card but I do believe that was Implied based off our conversation. I dont want to say 100% yes but based off the info I got I will say 99.99% personal CC is fine. Link it to a software like quickbooks(or whatever you choose) and that will help keep track of expenses and organize them as to which property they belong
- New to Real Estate · Irvine, CA · Member since 2021 · 24 posts · 40 votes5y
That makes sense as it is not different than expense report an employee submits when traveling or making expenses on behalf of the company. They use their own credit cards to eat while traveling for example and then submit expense reports to their companies and get reimbursed. Nothing different with the LLC that you own, it's just a company owned by you instead of by someone else.
- Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes5y
Originally posted by @David Korchak:
@Joe Splitrock I am wondering to your post about not using personal credit cards / accounts for LLC. Our CPA stated that using your credit card is OK as long as you have accountable plan setup and submit expense reports to your corporation / LLC. That way you may forgo on opening a business credit card and earn some points on business expenses. Can you comment on this?
Great point, if you use a reimbursement process, that is allowable on a personal card and it maintains separation. I still think it is cleaner and easier to track if the LLC is directly paying expenses on a business credit card. A nice benefit if your LLC gets business cards, the LLC can start building credit. You can still get points on business cards and there is are no tax ramifications. Just be aware that cash back cards are different. Whether business or personal used for business, the IRS doesn't let you pocket the cash back and claim the full expense. If you had a $100 purchase and 2% cash back, you should only claim $98. As you can read in this clarification document, the burden of tracking points is too difficult, but direct cash back is different. I am not sure how many people follow this, but that is their stance.
- Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes5y
Originally posted by @Nicholaos Koufoudakis:
@David Korchak I think you may be correct but I am not 100%. When I spoke with my CPA I did ask him about using 1 credit card for all LLC's and he said that is absolutely fine as long as you are making sure to separate which expense goes where. I failed to ask if that can be my own personal credit card but I do believe that was Implied based off our conversation. I dont want to say 100% yes but based off the info I got I will say 99.99% personal CC is fine. Link it to a software like quickbooks(or whatever you choose) and that will help keep track of expenses and organize them as to which property they belong
Really this comes down to documentation. You can use one card, but you need to track through expense reports or other documentation. None of this documentation is filed with your taxes. The only way it becomes relevant is if you get audited or sued. If you get sued, someone could argue your LLC is just a shell for liability protection. They could subpoena your business records. If your records are comingled or not detailed, that can work against you. My thought process is one credit card, one bank account, one LLC and there is no question it is a stand alone business. Yes you can track things through reimbursement and write checks between entities, then produce that as evidence of separation. It can just get more confusing and can be seen as less substantial evidence than a totally separate account.
- Rental Property Investor · Beavercreek OH · Member since 2018 · 422 posts · 970 votes5y
Originally posted by @Nicholaos Koufoudakis:
HI all, I had a question about bank accounts and what is the best way to manage this. I have chosen to go the LLC route for each property and was told the safe bet is to open a separate bank account per property to manage expenses/transactions etc.... Does anyone have any other suggestions? Though I am early on in my real estate investing with just a handful of properties right now when the day comes and I am at 10, 20, 30.... having that many different checking accounts seems a bit ridiculous. With that being said, if that is the safe route and best way to go about things I am all for it, but I wanted to reach out and see what others are doing when setting up and LLC per property and how they are handling their banking. Thank all.
Having a separate LLC for each property, while possible, would be a logistical nightmare. Some folks use a master LLC with subsidiary series LLC's. This is easier, but still expensive.
I prefer to keep about 30 properties max in a dedicated LLC. I have regular fire policies with 1 million dollars in liability coverage with an additional umbrella liability policy of 3 million dollars more.
Much simpler and the entire portfolio is substantially covered. With rising property values, I may need to up the umbrellas by another million or so, but I sleep well at night knowing my tail isn't overly exposed.
So 150 properties could be handled with 5 LLC's, 5 bank accounts and 5 liability and umbrella coverages. Tax is simple as the LLC's are treated as disregarded entities and all properties appear on your personal tax return.
No advice intended as I'm not a lawyer or CPA. This is just how I handle my portfolio on the advice of my experts.
Respectfully,
Gary
- Lender · Dallas, TX · Member since 2017 · 2 posts · 1 vote5y
We have many, many real estate investors at our bank. They'll all generally have one account per LLC, maybe more. When they login to online banking they can see all the accounts on one dashboard and make transfers from account to account, if need be. It's actually quite simple. Also our online setup system let's you quickly setup accounts for each LLC all at the same time. I'm obviously biased since I'm the CEO of Titan Bank - but overall this is what most customers do.
- Member since 2021 · 16 posts · 12 votes5y
@David Korchak @Joe Splitrock @Gary L Wallman Thanks all around gentlemen, great info.
Gary I like that setup you have going... I am not near those numbers just yet but it is good info to think on and prepare for when the time comes.
- Mckinney, TX · Member since 2021 · 14 posts · 12 votes5y
@Nicholaos Koufoudakis hello! I wanted to chime in here. If you haven't already, I highly recommend looking into what is called a "Series LLC." You do not need to formalize one LLC per property, as that would certainly indeed be in efficient and a pure administrative nightmare. However, it is prudent to protect each of your unique assets, each of your properties, by placing it within its own shell of protection. This is what a Series LLC will accomplish for you. This will protect and reduce potential liability, Will enable you to only have to file one tax return for your entire portfolio, which also means reduce administrative costs. Of course, you will want to open one bank account for each asset, but that is smart to do anyways.
- Real Estate Coach · Charlotte, NC · Member since 2016 · 399 posts · 341 votes5y
@Nicholaos Koufoudakis I can’t remember who it was that talked about accepting, transferring, or mitigating risk, but it was absolutely spot on. The additional piece Id add to that is to consider additional elements of risk.
Consider 2 options
Option 1-you have one single LLC, or maybe after every 5-10 properties you start a new one. In the off chance that **** hits the fan big time, you potentially have other properties at risk. But in the meantime you have one bank account, one credit card, one LLC renewal fee each year, etc.
Option 2-you have 20 LLCs for 20 properties. Not sure what state you're in, but here in North Carolina that means $4,000 per year in LLC renewal fees alone. Some bank accounts also have a $200+ minimum, so add another $4,000 in unusable cash. Any time you have a major expense you either need to make a capital contribution to your LLC (quick, call your bank and transfer money but don't screw up and send to one of the other 19 LLCs) or you need money coming out of your eyeballs and all 20 LLCs are incredibly well capitalized (still, make sure you don't mistakenly grab the debit card for LLC 3 instead of LLC 13). Hopefully you have stellar credit because 20 new credit cards will put a dent in that quickly. And then, the worst happens and **** hits the fan. Luckily you have your 20 LLCs, but unfortunately you used the wrong debit card or mistakenly screwed up the documentation on some expenses one too many times and your intricate defenses fail
That might be a little dramatic, but probably not that much. The complexity introduces an entirely new level of risk to you and your portfolio, not to mention the massive hassle that is likely to stifle your business and make you lose your mind.
Figure out your risk tolerance. If it’s damn near zero, there might be better alternatives to real estate for you. If it’s higher than that, weigh the pros and cons and make your business something you’re not going to hate every waking second of
- Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes5y
@Nicholaos Koufoudakis I have no idea where people get this irrational fear of being sued. You dont need one LLC per property or even an LLC at all if you are the sole owner. You have insurance on each with liability coverage right? Add a 1m or 2m umbrella on top and you are totally protected from lawsuits which are very low probability to begin with. Each llc will have annual fees and record keeping and its own tax return. What a nightmare! I'm sure your lawyer is salivating at the ongoing fees!
- Member since 2021 · 16 posts · 12 votes5y
@Adam Carpenter Thank you for this, definitely something I am going to pursue as I do really like this option...@Patrick Menefee Thanks Patrick, I am in North Carolina as well so this is great info. I am definitely finding out there are other ways to do things and this is a huge help...
@Account Closed You are spot on with the irrational fear... Unfortunately my paranoid side takes over and mindset of plan for the worst hope for the best takes over...I appreciate the info and ways to reduce risk with insurance, it makes sense. Now I just need to go through this thread and come up with a strategy that works for my specific situation.
Thank you to all this has been beyond helpful. Staying protected is my top priority but I am glad to see there are ways to cut down on the "admin nightmare"... At the end of the day if my biggest headache is a bit of extra admin work I think I can live with that.
- 5yDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
Another option numerous national asset protection attorneys promote, is creating an LLC for each property, but also creating a "property management" LLC that handles all the day-to-day transactions.
Each Property LLC legally hires the PM LLC to manage its asset (the individual property). Still need a bank account for each Property LLC, and the PM LLC, but transactions between them might only be once a year per the managment contract.
Logical Property Management4.9459 Reviews - Member since 2020 · 984 posts · 1k+ votes5y
Do not start an LLC. Do not open multiple bank accounts.
Having even one LLC is not good. An LLC does not protect you from being sued. The myth about LLC' is; if something bad happens at one of your properties e.g. some tenants go up in a puff of smoke, or something like an uninsured contractor falls off your roof and ends up being a quadriplegic then you will get sued for several million dollars. So, when sued you for $50 million and your insurance covers only $2 million, then the LLC is supposed to protect you from the Plaintiffs getting the rest of their settlement from your other properties. The Plaintiffs cannot directly get the money from your other properties, but the Plaintiffs can VERY EASILY get every penny of the money you personally have an interest in for every other property.
SECOND REASON LLC's are bad. When you don't have properties in an LLC and you want to leave those properties to your heirs e.g. your wife, or children, then when the properties are in LLC's and you want to get the no pay out of your pocket tax advantages then when you transfer the properties you cannot transfer them and avoid paying capital gains taxes and several other taxes because the LLC's are not your personal property. They are owned by the LLC and you will have to get appraisals and transfer the properties the same as when you want to sell them. You cannot 'gift' the properties without paying taxes because the properties don't belong to you. They are owned by a corporation.
THIRD REASON LLC's are bad. In California, I think we pay the Franchise Tax Board an $800 fee every year and then a CPA or whatever you use will charge you separately to handle each LLC. That is a lot of money over a 210, 20 or 30-year period and can be used for much better investment purposes.
Get an umbrella insurance policy to cover all your properties. I've owner real estate for more than 50 years and never had any type of incident where I was sued. I never had to file even one insurance claim. I still have insurance for every property and an umbrella policy, but having an LLC is overkill and you actually end up with less protection.
BOOK KEEPING For single family homes it is super simple and much easier to use one bank account. I hate Quickbooks with a passion and create all my accounting with Microsoft Access. Many people do well with Excel. Most people probably do okay with Quickbooks, but I always find where those people have a tremendous amount of errors they cannot easily identify and avoid.
For all your homes and small multi-unit properties use one bank account. For large multi-unit properties you can still use the same one account, but if you have partners you need to have a separate account.
- Mckinney, TX · Member since 2021 · 14 posts · 12 votes5y
@Nicholaos Koufoudakis Very welcome! One additional/great feature about a Series LLC is that because each asset is protected within its own shell, you could, so do you ever want to, have another person go in on a property with you without them having any involvement whatsoever with any other properties living under the Series LLC.
- Realtor · Phoenix, AZ · Member since 2020 · 79 posts · 37 votes5y
@Adam Carpenter
Wouldn’t it be one tax return either way no matter the number of LLCs? Each property would have to get reported on schedule E regardless of the number of LLCs unless some people do it where they include all income and expenses for multiple properties under one schedule E.
- Mckinney, TX · Member since 2021 · 14 posts · 12 votes5y
@Seidy Lasker Great question! With multiple LLCs, each would have its own EIN and would have to prepare its own tax return, then pass through to its owner, whether individual or parent LLC. With a Series, there is only one EIN for the entire series and each within the series are reported on one return without each having to file its own separate return.
- Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes5y
@Nicholaos Koufoudakis, you have gotten some great information here and some not very good mixed up information here. For example @Joe Splitrock, gave advice that is dead on. Other folks gave advice that is correct in some circumstances and dead wrong in other circumstances like @Account Closed. For example, if you get a personal judgement against you then charging order protection does keep them from getting your LLC properties, but they can attach any payments from the LLC to you. However a lawsuit from within the LLC property would leave you protected personally from the judgement unless you had done a negligent act personally that enabled you to be sued personally too. There is some truth to not getting the free stepped up basis to your heirs from a multimember LLC, but I believe that if you have a single member LLC that the property will pass to your heirs and get the free stepped up basis. Multimember LLCs also must file their own individual tax returns and give out K1s for each member, but single member LLCs can just be added to your personal tax return. What form of LLC do you have and what type of taxing structure did you elect? If you elected a Sub S structure then all of this goes out the window. If you elected the partnership taxation then some applies, and if you went with a single member and pass through taxing then most of it applies. I have over 40 rental units currently and some commercial units. I have one large entity, one small entity, 3 in my personal name, and I am now putting all new acquisitions into a single member LLC that just puts the properties on my personal tax return. Their are pros and cons to any method you use. You need to do the one that lets you sleep best a night.
I have been sued several times from my day job, but never anything related to my rental business. In 30 years of business I have only seen one lawsuit that came out of the operation of a rental business, and that one was covered by insurance. It was a slip and fall.
Thanks for starting this thread bud, I have enjoyed most of the answers, but remember not all advice is good advice. Listen and learn. Do not forget to give votes to the folks who took the time to give you great advice. Best of luck.
- Member since 2020 · 984 posts · 1k+ votes5y
I like the previous post. Well-written! Good Advice!
- Member since 2021 · 16 posts · 12 votes5y
@Dan Bass Dan I have not looked into a series LLC yet but will be speaking with a lawyer on this matter soon and will make sure to update the board.
@Jerry W. Thanks so much for that breakdown.... I have been taking notes on all comments and generating questions to run by with a lawyer. As it all does sound great and I know everyone wants to help its comes down to a simple method of trust but verify. The feedback from this has been incredible and I thank everyone involved. It seems we are all learning some new things on a subject that has a few options with different pros and cons.
- Member since 2020 · 984 posts · 1k+ votes5y
Lot of luck getting advice from attorneys!!!. I am a firm believer in getting advice from attorneys and I HAD an attorney who was pretty good, but he passed away. The problem with getting advice from attorneys is most attorneys know the basics about many things, but they do not know the downsides and do not focus on explaining the downside because just like us investors the attorneys start to learn the downside to most things when things don't turn out as expected and after you already took a loss, or when you end up in a lawsuit. That is when attorneys start do do their serious research to do damage control.
Here is an example. I invested $1 million into two K-Mart shopping centers in 1980. By some date (can't remember). I thing it was to occur in 7 years. My $1 million was supposed to turn into $2.3 million.
I though I was doing the right think when I brought the Placement Memorandum to an attorney that specializes in syndicated real estate deals. Well...after paying my attorney about $1,000 to tell me he read the Placement Memorandum and the deal was good I invested exactly $1 million in the deal and lost exactly $1 million plus I ended up paying an additional $50,000 for attorney fees because everyone was suing everyone and I had to file bankruptcy to make this nightmare go away.
Humans are strange when it comes to getting advice. Before I invested my $1 million I asked every person I knew about what they thought. I asked my CPA, other investors, family and every person thought the deal was great. But...when I lost my $1 million every person I talked to, including my CPA, said the thought I should never get involved with syndicated real estate deals because it is not a good idea to let other people control your money.
DO ONLY INVESTMENTS WHERE YOU HAVE 100% CONTROL OVER ALL DECISIONS!
Here is another strange thing about humans. Have you ever noticed that the person who has the money in their hands is always the person who has control of the situation. The person that money is owed to often has to conform to the demands of the person who has control of the money. Always have full control of your money and never expect that the attorneys and professionals are giving you good advice.
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