Real Estate Investor · Amherst, NH · Member since 2015 · 59 posts · 14 votes
Hi everyone!
My husband @Kevin Kovalsky and I have been in the process of setting up a business structure for our rental properties where each property is in its own LLC and then all the individual building LLC's are owned by a parent LLC.
The purpose of the LLC's are for asset protection but from what I understand, it can all be for naught if you screw up the accounting and since we are brand new to this we have a few questions and I'm not even sure who to ask! Would you mind pointing us in the right direction? Are these questions for a lawyer, tax accountant or some other resource? Does anyone know these answers?
How do we pull money out of the LLC to put toward a down payment of another building?
How do we pay ourselves from the LLC's?
How do we put money into an LLC to fund a project if there is not enough there already to cover it (i.e. new roof)?
Does it make sense to have a bank account for our parent LLC? What would you use this account for?
Investor and CPA · Arvada, CO · Member since 2015 · 2k+ posts · 3k+ votes
9y
This is a bit backwards from how I've seen most LLC structures set up for asset protection. Usually you have each property owned by its own LLC and then a separate LLC set up for property management purposes. I'd double check with your attorney to make sure this gives you the protection you're looking for. That said, I'm not a lawyer, so I'm certainly no expert on that.
From an accounting aspect, you will want to be careful about co-mingling funds. Co-mingling means that you pay for a property expense out of your personal account, or you pay for a property expense out of another property's account or you pay for personal expenses out of the business account.
When you are adding or withdrawing equity, that is an acceptable transaction and is not considered to be co-mingling. So when you add funds, you code it as a capital transaction and you would use an account called "Owner (or Member) Capital Contirbutions". When you withdraw funds, you code it as a capital withdrawal and you would use and account called "Owner (or Member) Draws".
Real Estate Investor · Amherst, NH · Member since 2015 · 59 posts · 14 votes
9y
Thank you @Linda Weygant! I think that makes sense. Can you do those adds and withdrawals as needed and as many times as needed or does it need to be setup as a regular (i.e. monthly or annual) transaction?
Investor and CPA · Arvada, CO · Member since 2015 · 2k+ posts · 3k+ votes
9y
I would set it up as one transaction, either monthly or quarterly. You certainly *can* do it ad hoc or as needed, but if you're constantly pulling money for personal expenses in small increments, it can start to look a little weird. Do one larger deposit or withdrawal on a regular basis and it's a bit easier to manage and is one less thing for anybody to question later.