Bank Accounts / Cash Flow / CC - best operational structure flow of funds

Buffalo, NY · Member since 2018 · 790 posts · 530 votes

If you are putting properties into different LLCs then you'll want to keep the funds from those separate. For example if property 1 is in AAA LLL and property 2 is in BBB LLC then you would want separate accounts for each LLC and never commingle expenses between the two. So don't put rent from property 1 into BBB LLC account. You will also want to keep a separate set of books for each LLC. You can use Quickbooks and have an account for each LLC (best quality/ease of use software, but most expensive) or WaveApps.

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Tyler Haanen

Rental Property Investor · Milwaukee, WI · Member since 2017 · 61 posts · 40 votes

2y

Each property ideally has its own business bank account, as well as your master LLC.

Question, is the master LLC acting as the property manager for the other properties?

Changes some of my answer below, but here would be most of the types of transactions you would have in these accounts and between them.

Property transactions would be: all property specific rents and expenses, allocated expense transfer to the master LLC and transfers to master LLC bank account for profit AND/OR property management fee.

Master LLC transactions would be: Shared expenses going out, reimbursements/transfers from properties for their allocated share of those expenses coming in, the transfers from your properties deemed as profit AND/OR property management fee and then transfers to your personal accounts deemed as owner distributions.

Other transfers that could occur is if the master LLC needs to transfer to the properties for capital expenditures above and beyond the reserves you might leave in their accounts. Could also be transferred from your personal account to your property accounts as well.

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Adam BartomeoBusiness Member

Real Estate Broker · Cape Coral, FL · Member since 2015 · 2k+ posts · 1k+ votes

2y

@Tim Delaney is correct. By creating separate entities for the investments, you are looking to shield each investment from liability from the other investments. In doing so you create an accounting nightmare. You will need separate operating accounts, escrow accounts (for the annual rentals), and credit cards for each entity and then also for the master. The master would pay for the business items like - car, office, paper, etc. All of the tax returns and filings can get expensive and complicated VERY quickly. I know several investors that have done this and all they do is complain during tax season.

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Jonathan Bock

Accountant · Bryn Mawr, PA · Member since 2023 · 409 posts · 321 votes

2y

People selling "structure" somehow forget to mention yearly compliance costs.

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Alecia LovelessPro Member

Member since 2019 · 3k+ posts · 2k+ votes

1y

@Adam Bartomeo I keep separate checking accounts for each property.

My contractor has one credit card for all of my individually owned buildings (jointly not multiple cards) and one credit card for the building I own in a partnership.

I also have one credit card I use for expenses associated with the properties.

My LLCs have separate reporting and tax filings that then get rolled into my personal taxes.

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Max Emory

Accountant · 100% Remote · Member since 2019 · 497 posts · 216 votes

1y

@Emily Poerio, since you're beginning this journey, beware of the overly complicated entity structures some attorneys say you "must have".

We see so many different entity structures for rental portfolios in our REI Bookkeeping Firm.

Ensure it's simple enough for you to easily abide by the structure in your day-to-day operations (which your question is getting at).

We've had bookkeeping clients with complicated structures that apparently protected them to the maximum degree but they didn't abide by the structure when conducting transactions in their business daily (lots of unintentional commingling). When this happens the fancy/complicated entity structure is useless protection-wise.

Lots of attorneys out there who will sell you a $10k+ entity structure that doesn't mesh with your operations as you scale your portfolio and team. Most of what they recommend only makes sense from an operational standpoint if you are a larger investor and have a team to help you manage everything.

Also, ensure your REI-savvy tax pro and your REI-savvy attorney link up during the entity structure creation process so things are optimal on all sides.

Just something to keep in mind as you're beginning this journey.

Answering your question, you'll want a checking account (minimum) per subsidiary entity and for your parent entity. Ideally, you'd have a credit card per entity as well but this isn't realistic once you scale past ~10 properties. So, a few credit cards at the parent entity level works better depending how much you plan to scale but this requires more work on the bookkeeping side.

Just ensure you keep things as simple as possible and always think about things from an operational perspective as you grow.

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Chris SeveneyBusiness Member

Moderator

Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes

1y

Quote from @Emily Poerio:

Hello -

I am new to REI and getting ready to close on my first set of properties. I have a structure that is a Master LLC and subentities that will be used if either STR or LTR. I currently have 1 Business Bank Account that is for Master LLC and stuck on best way to manage cash flow and flow of funds between account for all master expenses related to my business setup vs and also expenses/ rent related to the properties to ensure that I keep things clean, simple and easy for reporting, taxes. Do you recommend an operating business account in which I collect rent from and pay expenses if either STR or LTR entity and if master expense (ie. Car, computer,) pay out of master LLC? Also, Credit Card suggestions for best business card for benefits / perks right now?

Thanks in advance for all your insights and advice!

Emily

3 Tree Properties LLC

My recommendation is to keep it as simple as possible. Unless you are running multiple business operations (like a PM business, sales, contracting) the need for a master LLC typically only creates havoc for you.

The simple way we do things is we have an entity and our assets are in that entity. We use accounting software that codes the income and expenses to the property (called a class) so we can run P&L;s on each property with ease.

Your accountant and bookkeeper will also thank you later for keeping it simple and avoid significant accounting costs.

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Bank Accounts / Cash Flow / CC - best operational structure flow of funds

Bank Accounts / Cash Flow / CC - best operational structure flow of funds

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