BRRRR and Operating/Holding LLCs
BP Community,
I'm a new investor who plans on implementing the BRRRR strategy with a partner who is a GC in San Antonio, TX. I'm out of state and will be bringing a bulk of the capital. My partner conducts business in San Antonio and will be responsible for managing the rehabs. Our plan is to execute at least 2 SFH purchases per year over the next 5 years. We will refinance using commercial loans.
For asset protection, we plan to form an appropriate entity to execute the business. I've been scanning the forums and listened to @Scott Smith on the Bigger Pockets podcast #109 talk about how real estate investors should maintain separate LLCs--one as the operating company, one for their fix and flips, and a separate entity for their buy and holds. With this high level back drop, I've been scouring online resources to better understand the relationship between operating and holding LLCs and am trying to understand the basic mechanics of how they entities are utilized in the conduct of the BRRRR strategy.
So on to the question(s). From what I've read, me and my partner could form the holding LLC and the holding company could establish the operating LLC where most of the actual business is conducted. I'm trying to understand where exactly the hand offs occur between the entities as my partner and I are executing the BRRRR strategy. Are there separate bank accounts for the holding and operating LLCs? When we initially fund the company, do we deposit into the Holding LLC? Does the initial offer and purchase of the property occur with the operating company (ie Operating LLC)? Do we transfer funds from the Holding LLC to Operating LLC to execute the purchase and rehab? Do we conduct the rehab under the Operating LLC (ie pay subcontractors through this entity)? Do we establish our relationship with our property management through this Operating LLC and collect rents into the Operating LLC? Do you periodically siphen funds from the operating company to the holding company so as to limit exposure? Does the refinance of the property occur under the operating or holding LLC? Is the loan held against the operating or holding company?
I know there are a ton of questions here and it seems the answer is definitely see a lawyer...but if anyone out there has experience and can point me to a good resource to understand how Operating and Holding LLCs are utilized for real estate in general and BRRRR specifically, I'd greatly appreciate it.
Thanks,
Mel Maxwell
