Structuring NC LLC with Finance management
Hi I would greatly appreciate input regarding the proper way to structure our real estate business in North Carolina. We have (3) Single family homes as Rentals but only (1) LLC established. Many of the books or podcasts recommend separate LLCs and checking accounts for each property. I feel like over time this would be very difficult to manage. If we were to restructure now for current and future growth how do we do that? Any books or other reading material to assist us in this matter would be greatly appreciated.
Disclaimer: I am an attorney, but I am not your attorney. This is not legal advice, just friendly information.
This is more a question of risk tolerance and strategies for mitigating a certain level of risk. It's much debated on BiggerPockets how many LLCs are needed. It depends on you, your risk tolerance, and the value of your assets. The LLC can limit liability to just the assets within that LLC. If the assets of the LLC include three properties, then a judgment from one property could collect by foreclosing the other properties. But if they are in separate LLCs, the liabilities of one LLC can't go against the assets of another. It's more complicated than that, but that's the basics. Of course, insurance is the first line of defense.
From an inconvenience/hidden-costs perspective:
I previously did this for multiple properties and it did become a headache. Assuming you have all bank accounts at one institution, they can still have minimums and fees which can become a pain for rentals especially if you want to pull distributions out to pay yourself. There can also be income/outgoing wire fees which you might be able to avoid if you kept all the cash in 1 account. If you have good recordkeeping and can reconcile back to cash balance in 1 account, then you're fine. Just don't use the security deposits - might be good to put these in a separate bank account to differentiate.
Another cost to consider with 1 LLC per 1 property is the cost for tax prep if you outsource. Some CPA's will charge a fee for each filing regardless of activity in that LLC. If you self-CPA, just a paperwork project.
Can be a negative from a lender if you go to a new lender with an infant LLC and no history in this one. Of course the good ones will look at global portfolio but still something to point out.
Agreed to @Sean Morrison on liability. We've carried as much as $2M in an LLC so just make sure your insurance reflects assets in the LLC.
@Pat Lulewicz thanks so much for providing a quality response to my question! It was very helpful in shaping our future journey. Thanks again and all the best.
@Sean Morrison thanks so much for your thoughtful answer to the question we posed. Your willingness to assist with you experience and expertise is truly appreciated.