How to handle finances and bookkeeping w/ a growing STR business

Question

My wife and I are under contract for our second STR and I'm wondering how to handle the financials and bookkeeping as we go forward here (and hopefully continue to grow).  We currently have an LLC, a business cc and bank account, and a quickbooks account for our first STR - it's been fairly smooth.  I hired a CPA for the first time last year to help with the taxes, but I pretty much do all my own accounting.  We self manage our current STR and intend to continue to do so.

I see a few options as we grow.  We can obviously just create a new business entity and duplicate everything for each new STR (new LLC, cc/bank account and QB business).  This seems like it's going to get complicated, but I feel like you have to have two separate businesses in quickbooks to keep everything separate, right?   I've heard of some people creating a parent LLC and then having separate LLCs (one for each STR) underneath - that seems a little unnecessary and complicated as well.  It seems like it's probably worth it to hire accounting help at some point here - I do have a QB expert to rely on for consultation as needed but I don't use anyone on a regular basis.

I'd love to hear how people have handled everything when they've grown beyond a single STR.

Thanks!

Greg O'Brien · Answer

@Erich Wolff as both a STR investor and CPA firm owner, I can tell you this is a common question.

Many try to DIY the books as long as possible to save  cash flow but at a point, your ROI may come from time savings and turning over to an accountant to handle. The accounting and tax strategy of the properties should also work hand in hand.

Re Multi Entity - yes, your CPA should chime in here but there are cases where a holding structure is warranted and you can set the financials up to streamline things a bit. It is not as complex as it may appear once you get the system in place!

Erich Wolff · Answer

Thanks for the feedback!

David M. · Answer

@Erich Wolff

Oh... I just hit me..  Why not do the standard "Mgt LLC?"  You can run all the financials out of one LLC while the LLC's holding Title are basically dormant?  You'll need some qualified legal assistance to set it, have basically a PM contract between your Title holding LLC and the Mgt LLC.  Actually, the sooner you set it up the better I would think in your case.  You would run the short term rentals out of the Mgt LLC and that would your "branding."  You can get creative, but not too creative, with a company name, logo, etc  :)  this would let you do your bookkeeping in one business accounts (one bank account, one credit card) and you would just capture the sources of the expenses and income in your system for tax purposes, just like any other bookkeeping system.

Good to go?

David M. · Answer

@Erich Wolff

If you want to or need to have a separate entity for each property, then of course you will have to duplicate your existing bookkeeping system and accounts.  Its a separate entity so it needs all its own "stuff."

In your case, potentially the main value, from an accounting / money flow aspect anyway, in my layman's opinion to having a holding LLC would be to isolate any capital flows to just business accounts.  Lets say STR1 is having booking troubles, so short on cash, and you have to repair / replace the A/C, but STR2 has the cash.  You could move the funds from STR2, to the holding LLC, then to STR1.  The only reason to my mind that it would matter is if your books get audited/subpoenaed (the whole point of having the entities..).  Otherwise, the funds would have to hit your personal bank account to swap between STR's.  In that case, you need to "open up" your personal finances to prove where the money went / came from.  Otherwise the holding LLC would for anonymity purposes, etc. but you are already out of order in the creation...

I'm part of that camp in bp where you don't really need a LLC all the time.  In your case, do you need to keep them in separate LLC's?  With proper bookkeeping you can keep the expenses and incomes categorized even though they are in account.  Otherwise, your accounts are your bookkeeping.  That being said, I am / have been proceeding with other ventures and do create more LLC's and they need their accounts and I expand my bookkeeping accordingly.

I don't understand how somebody else can do my bookkeeping for me, at least at my scale.  I don't have a tremendous number of entries --- its not like I'm running a hardware store or a restaurant...  But, I know people have it done.  There was a pair who advertised before on BP who help out with this for a flat fee.

I don't use quickbooks, but from what I've read on BP don't people setup different "classes" or something to "hack in" putting rentals into BP?  But, maybe if you are using different business entities you need to create as such in QB...  sorry.

Keli'i Lum · Answer

Fantastic!  Thank you Michael!  I appreciate you.

Michael Baum · Answer

Hey @Keli'i Lum, here is his profile - https://www.biggerpockets.com/...

His blog posts are on there along with other posts. He is not as active as he used to be.

Keli'i Lum · Answer

@Michael Baum Hi Michael! I tried looking for his profile and couldn't find any of his articles. Do you have a link to one of his articles? If so, that would help link to all of his articles. Very interested in reading into those!

Michael Baum · Answer

Hey @Erich Wolff, Scott Royal Smith on here has several articles on parent and child LLC's. The advantages and the like.

From what I have read, it might be a good idea when you have multiple properties in order to help protect them from lawsuits. Each child LLC is separate from the others.

Do a search and what he has to say.

Personally I don't have one as we have only one rental, but I would think about it when we have more than one place.

How to handle finances and bookkeeping w/ a growing STR business

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