Can you spend/earn money from an LLC ?

3 Replies

If we have a new LLC to maintain the rental portfolio but the rental properties are still in personal names is it OK to spend money on the rental property using a business credit card and collect rent to the business account even though the LLC dont own the property but the properties are still owned on the personal name ? How do we build up the business credit for the new LLC ?

@Mahi Mir

Who is "we" -- you and your spouse, you and a dependent, you and an arms-length party, etc?

Why aren't the properties going to be moved into the LLC? Doesn't that defeat the primary legal purpose of an LLC: asset protection?

Maybe what you have most closely resembles a property management company in which the PM company collects rents, pays expenses on behalf of owners out of rents, and then remits net rents with a statement to owners.

I don't necessary think that's optimal as you'd have to charge a fair market PM fee and would open yourself up to SE taxes on what sounds like it would otherwise be rental real estate income.

You should talk to a CPA/EA that will sit down with you and have the deep conversation about an optimal way to structure things taking into to consideration everyone's facts, circumstances and goals.

Originally posted by @Eamonn McElroy:

@Mahi Mir

Thanks Eamonn for your reply.

Who is "we" -- you and your spouse, you and a dependent, you and an arms-length party, etc?

MM: The LLC is owned by me and my wife but the properties are just on my name not my wife's.

Why aren't the properties going to be moved into the LLC? Doesn't that defeat the primary legal purpose of an LLC: asset protection?

MM: I did not move the properties yet into the LLC because of the i just refinanced one of my rental and closed on the new rental property and may be chances of triggering the quit claim deed if i move too soon into the LLC.

Maybe what you have most closely resembles a property management company in which the PM company collects rents, pays expenses on behalf of owners out of rents, and then remits net rents with a statement to owners.

I don't necessary think that's optimal as you'd have to charge a fair market PM fee and would open yourself up to SE taxes on what sounds like it would otherwise be rental real estate income.

MM: Yes my first rental is managed by a PM company where they collect rent and remits the rents to me with the statement. My second rental property needs some rehab/modifications to the property so wondering if it is OK to pay those costs via my LLC instead of my personal account ? Would that help in building my LLC credit history ?

@Mahi Mir

The answer is - yes, you can. 

I assume that this is a husband-wife LLC, which is normally ignored ("disregarded") for tax purposes. So basically it makes no difference whether or not you have/use your LLC - for tax purposes.

Since it accomplishes nothing tax-wise, why do you even have an LLC? Supposedly, for asset protection. And if you're after legal protection, then you need to ask an attorney, which I'm not. I suspect (but I could be wrong) that asset protection will require that you transfer the ownership to your LLC, either directly or thru a land trust.

There are disadvantages of transferring property into an LLC, so do consult with an attorney.

PS. I would be careful with taking advice from other investors. They love to post about how they do or don't do asset protection. But there's a big difference between "this is what I'm doing" and "this is what is right." Just like with dieting, relationships, investments and everything else that requires no real knowledge, only opinions. :)