Real Estate Investor · Phoenix, AZ · Member since 2011 · 33 posts · 9 votes
I am closing on my second rental prop next month and want to use an LLC for asset protection. In order to receive rents and deposits I'll need a business checking account.
From what I've learned each property should be a separate LLC and checking account. If I acquire 10+ properties, do I need a checking account for each one? What do people do when they have 50+ properties??
Real Estate Investor · Phoenix, AZ · Member since 2011 · 33 posts · 9 votes
14y
@Brian
I am going in 50% with a family member for this house. They have numerous properties free and clear, thus the need for the LLC and asset protection. Otherwise I wouldn't even bother.
Investor · Union, NJ · Member since 2011 · 838 posts · 295 votes
14y
Hi guys,
What do you mean when you say
"Just cap your equity exposure in each LLC, 200-250k is a common cap."
I am not following. If you don't have each property in a seperate llc doesn't that give you much more risk/exposure? For example if you have 3 properties each in their own llc if you are sued for something on property A and lose the most they can take is property A vs if you have one llc and 3 properties and same situation can't they take all 3 properties in a bad case scnario??
Investor · Cincinnati, OH · Member since 2010 · 1k+ posts · 928 votes
14y
Chris -- There is an expense and hassle factor for each LLC that you hold, and this has to be weighed against the very remote chance of a successful lawsuit against you that would exceed the liability insurance protection that you have in place.
You most definitely will need separate bank accounts for each LLC, as well as operating agreements and company records. And of course the initial set up and annual state fees on LLCs. If you're in a state where the annual fees for the LLC are minimal, then a lower equity cap in each LLC may be cost effective. I don't think it makes sense to say "one property, one LLC". The amount of equity in each property could vary widely, depending on financing in place and property value. Some folks try to stratify their properties by risk, and put the risky props together (in lower income neighborhoods, for example). That seems worth considering.
Investor · Riverside, CA · Member since 2011 · 2k+ posts · 3k+ votes
14y
I definitely wouldn't do separate LLCs for each property you own unless they have very high equity as suggested above (> $250K). You only need one account, but you should become very proficient (or hire someone) at Quickbooks or some other accounting software.
I use separate accounts for each property, but only for rent deposits. Each tenant is given 12 deposit slips upon move in and they go to the bank to make their rent payments. I do not let them mail me checks. The deposit slip is their receipt. I have them trained very well and it makes my management program extremely easy to run even when I take 30+ day vacations traveling to far away places like India. All I need is internet access for a few minutes to check that all rents have been paid and then I clear them all from the tenant accounts to the main operating account.
Investor · Union, NJ · Member since 2011 · 838 posts · 295 votes
14y
Thx Dave and Aaron makes perfect sense!
Aaron I have begun trying to train my tenants to make the rent deposits themselves also. I love the idea of giving them a pre filled out deposit slip (12) of them actually.
I also like how you have a dedicated chk account to receive the rents then you move them into your main account. Right now the tenants deposit directly into my main account. Seting up a sep. account just for rent checks sounds like a good idea.
The one gotcha that I cannot stand with having a LLC here in NJ is if you need to evict a tenant and go to court for anything even something as cut and dry and simple as non payment of rent, if you operate as a LLC you MUST be represented by an attorney in NJ vs if it is held in your name you can go to court without an attorney. I have been through the eviction process for NP of rent and i can honestly say if you know the laws and rules an attorney is not required for this type of eviction. Any other type I'd probably feel differently about.
Investor · Fort Worth, TX · Member since 2011 · 1k+ posts · 450 votes
14y
Originally posted by Aaron Mazzrillo:
I use separate accounts for each property, but only for rent deposits. Each tenant is given 12 deposit slips upon move in and they go to the bank to make their rent payments. I do not let them mail me checks. The deposit slip is their receipt. I have them trained very well and it makes my management program extremely easy to run even when I take 30+ day vacations traveling to far away places like India. All I need is internet access for a few minutes to check that all rents have been paid and then I clear them all from the tenant accounts to the main operating account.
I like the idea of letting my tenants deposit to the bank and was trying to figure out the best way to do this without the tenants knowing my account number. I think someone said if you set up a business account they only need the name of your business.
Then, I read a post here on BP about an eviction problem where a partial deposit was made and thus the eviciton process was stimied. Even if you use prefilled deposit slips, the tenant could just use a new slip at the bank and make a partial payment. How do you protect yourself from this?
Investor · Union, NJ · Member since 2011 · 838 posts · 295 votes
14y
I guess you could issue a receipt signed by both parties stating rent in full received on such a date via deposit.If you show a pattern of this it should hold up in court? If the rent is stated in lease and tenant only deposits half rent is not fully received and considered late as well. Just b/c a tenant puts a partial payment in the bank that doesn't mean payment in received in full. I am surprised this delayed the eviction process.
Habitual late payments are grounds for eviction too. A notice to cease and notice to quit are required for this type of eviction here in NJ where none of these steps are required for a non payment of rent eviction.(my favorite) I guess thinking more about it I can see how things can get clouded with a partial payment deposited into your chk account as they have paid something so maybe it isn't a clear non payment eviction.
Real Estate Investor · Phoenix, AZ · Member since 2011 · 33 posts · 9 votes
14y
I believe resiteit.com is one. I contacted them to confirm, they are double checking and will respond on Monday. I have heard of others but can't remember the names.
Must landlords hold security deposits in a separate bank account apart from other assets?
In some states, the law imposes a requirement on landlords to keep the security deposit in a separate account from their own money--this makes sense because, legally speaking, the money does not belong to the landlord. A security deposit belongs to the tenant until it is later refunded or applied to cover unpaid rent or damage beyond normal wear and tear.
BTW, here's a great resource that charts all 50 states' rules! Pretty cool! (And, BTW, it says: "separate bank account" in New Jersey for a security deposit! And Arizona? NOT required to have a separate account!!!)...
Sorry Mindi B. I must have had New Jersey on my mind! LOL!
Bob
Link to this chart: http://www.landlord.com/security-deposit-law-guide.htm
Investor · Union, NJ · Member since 2011 · 838 posts · 295 votes
14y
Hi Robert,
Here is some info on NJ rental security guidelines. Hope thsi helps:
SECURITY DEPOSIT BULLETIN
May 2010
This bulletin outlines the laws pertaining to security deposits for residential rental properties in
New Jersey, pursuant to the Security Deposit Law, as set forth in N.J.S.A. 46:8-19 through 26
and as may be interpreted by a court of law. Landlords are permitted to charge security deposits
as security for the full performance of all of the terms of a lease. The security deposit law was
created to protect tenants from landlords who require security deposits and then divert the
deposits for their own use. This bulletin is for informational purposes only and should not be
used for legal interpretations or legal advice. Please consult an attorney for legal services and
advice when necessary.
APPLICABILITY
The Security Deposit Law applies to all rental premises or units used for dwelling purposes
except owner-occupied premises with not more than two rental units. However, a tenant
residing in an owner-occupied premise with not more then two rental units can invoke the
protections of the Act by giving the landlord 30 days written notice of the tenants desire to
receive the Act’s protection. Such written notice may be given at any time during the tenancy.
AMOUNT OF SECURITY DEPOSIT
Landlords are not permitted to require more than one and one half times the monthly rental
payment as a security deposit. Any additional yearly security deposit increase may not exceed
10% of the current security deposit. There is no time limitation within the statute for making a
request of a deposit.
Note: Be sure to obtain signed, dated receipts marked “security deposits”. Keep receipts for
your records.
DEPOSIT OR INVESTMENT OF SECURITY DEPOSIT
a) Landlords receiving security deposits for 10 or more rental units shall invest or deposit
security deposits in an insured money market fund established by an investment company based
in New Jersey, or in an account that bears a variable rate of interest, at a State of federally
chartered bank, savings bank or savings and loan association insured by the federal government
and located in New Jersey. All deposits and investments shall be made in accordance with the
Security Deposit Law. The security deposit shall be used in accordance with the contract, lease
or agreement and shall not be mingled with the personal property or become an asset of the
landlord.
b) Landlords subject to this law, receiving security deposits for less than 10 rental units shall
deposit money in a State or federally chartered banking institution, in this State insured by the
federal government in an account that bears interest on time or savings deposits. The
Commissioner of Banking and Insurance, by rule or regulation, may require some or all persons
receiving money for less than 10 rental units to follow the investment and deposit requirements
that apply to landlords with more than 10 rental units.
Administrative and Service Fees
Pursuant to P.L. 2003, c. 188 landlords are no longer allowed to take administrative
expenses from security deposit money. The earnings or interest belongs to the tenant. The
tenant’s interest or earnings shall be paid to the tenant in cash, or credited toward payment of
rent due on the renewal or anniversary of the lease or on January 31, if the tenant has been
given written notice that the interest payments will be paid on January 31, of each year.
The landlord must give a security deposit notice at the time of each annual interest payment to
the tenant.
Notice of Deposit of Security Funds
Landlords are required to give tenants a statement in writing including the name and address of
the investment company, bank or savings and loan association along with the type of account,
current rate of interest and amount deposited within 30 days of receipt of a security deposit.
This notice may appear in the lease. The landlord must notify tenants within 30 days of
transferring security deposit money to a new landlord or moving the security deposit to another
account or bank. If notification is not given or if the security is not deposited or invested in
accordance with this law, the tenant has the right to require that the security deposit, plus 7 %
per year be applied toward any rent due. This request must be made in writing. However, after
giving the landlord written notice the tenant must allow the landlord 30 days to comply with the
annual interest payment and notice requirements. The 30-day allowance is not required, if the
landlord failed to properly deposit the initial security deposit money.
Investor · Union, NJ · Member since 2011 · 838 posts · 295 votes
14y
Hey Brian, are there any states where courts are more Landlord friendly? lol I gotta say though for non payment I have never had a problem with an eviction. It's pretty cut and dry if tenant don't pay Landlord has a right to get them out in a fairly timely fashion... thankfully!!
Orlando, FL · Member since 2009 · 2k+ posts · 282 votes
14y
Does this 200-250K equity per LLC rule apply only to people with a high net worth? Because for some people applying this rule could be disastrous, if they use one LLC to buy a bunch of cheap rentals and don't have a lot of outside assets to fall back on if they get sued.