LLC's and Bank Accounts for Property Management Company

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LLC's and Bank Accounts for Property Management Company

Tom J.
Member since 2022 · 6 posts · 1 vote

Hi All,

Currently I am a Property Management Company with 20 units that I manage. At years end I will be forming an LLC and creating new contracts with the owners under the newly formed LLC.


My plan is to just have 1 LLC entity manage all the properties, with an operations bank account, and savings bank accounts for each security deposit we take in. I was curious to know if this is the right way to do it, or if I should have multiple LLC's and/or bank accounts?

Again, I do not own any of the properties, I am solely the management company that provides a service to the owners of the property.

Thanks for the help.

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Drew SygitBusiness Member
Property Manager · Royal Oak, MI · Member since 2012 · 13k+ posts · 9k+ votes
4y

You only need one LLC, but should have Operating & Management checking accounts and the appropriate account to hold security deposits.

Rents and owner contributions will go into the Operating account.

You will pay property expenses and owner draws from the Operating account.

You will pay your earned management fees to the Management account.

You will pay your company expenses from the Management account.

[email protected]248-209-6824
Logical Property Management4.9462 Reviews
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  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    4y
    Quote from @Tom J.:

    If you're managing for others, you have to be licensed. The State will have very specific laws about how you set up your accounts.

    The DIY Landlord Book4.7243 Reviews
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    1Reply
  • Tom J.
    OP
    Member since 2022 · 6 posts · 1 vote
    4y
    Quote from @Nathan Gesner:
    Quote from @Tom J.:

    If you're managing for others, you have to be licensed. The State will have very specific laws about how you set up your accounts.

    Hey Nathan,
    Thanks for the reply, managing in Massachusetts so there are no broker requirements or guideline requirements here other than keeping security deposits separate.

    Just looking for basic advice if I should have more than 1 LLC or not, and how other people set up their bank accounts.
    0Reply
  • Calvin Thomas
    Developer · New York City, NY · Member since 2015 · 812 posts · 718 votes
    4y

    Traditionally speaking, You should have an operations account and a sub escrow account for each lease/landlord account.  MA does require escrow accounts for money you are holding in trust. Property/unit reserves and lease security deposits should be kept in escrow accounts.

    https://www.mass.gov/info-deta...

    How much experience do you have as a property manager? It's pretty important that a property manager knows the basic laws in their state. Otherwise, you open yourself up to lawsuits and fines. Lawsuits from landlords and tenants, fine's from the regulatory agencies.  Additionally, you should have GL insurance and possibly even a RE license so you can rent out the properties when they are turned over.  Should you plan on renting the property out, then you do actually need a RE license.

    0Reply
  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 13k+ posts · 9k+ votes
    4y

    You only need one LLC, but should have Operating & Management checking accounts and the appropriate account to hold security deposits.

    Rents and owner contributions will go into the Operating account.

    You will pay property expenses and owner draws from the Operating account.

    You will pay your earned management fees to the Management account.

    You will pay your company expenses from the Management account.

    [email protected]248-209-6824
    Logical Property Management4.9462 Reviews
    WebsiteView Page
    2Reply
  • Richard Bechtol
    Attorney · Member since 2022 · 83 posts · 79 votes
    4y

    I think because you do not own any of the properties that you are fine to have just one LLC.

    1Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    4y
    Quote from @Tom J.:

    Sorry, I didn't see it was Mass.

    One LLC for your PM business.

    Business checking and savings, both in the LLC name.

    The DIY Landlord Book4.7243 Reviews
    WebsiteView Page
    1Reply
  • Lien VuongBusiness Member
    Real Estate Agent · Boston, MA · Member since 2018 · 2k+ posts · 1k+ votes
    4y

    I think creating multi accounts for each property will be a lot of juggling given your limited unit counts. I would group it in one and just itemize the expenses in QB and continue with your operating, savings, escrow accounts for LM and SD deposits. 

    [email protected]
    The Elle Group5152 Reviews
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  • Richard F.
    Honolulu, HI · Member since 2008 · 3k+ posts · 2k+ votes
    4y

    Aloha,

    Check local laws, but here we have an operating account for the PM company, from which is paid the office help, office rent, business insurance, etc. etc. AND which receives all commissions, fees, or other payments to the PM from the PM clients. You cannot "co-mingle" Client funds with Company or personal funds.

    ALL Client funds are deposited to a Client Trust Account, whether it is incoming rents, or owner contributions, or insurance proceeds for a claim on a client's property, or some other source. Vendor payments are also made from this account for all expenses of each property only. This includes PM management fees etc.

    A separate trust account is used to keep tenant security deposits in the clear.

    With regard to multiple property owners, your accounting software should be set up so that you identify each individual property, and, along with your chart of accounts for items such as property tax, management fee, insurance, plumbing repairs, rent, late fees, etc. etc. you make entries to the proper accounts. Properly set up, you can easily generate a variety of financial reports, rent rolls, etc. and process all payables and receivables in an efficient an orderly manner.

    Usually you should be able to "lock" your transactions at the end of each month, permanently preventing any changes to prior periods once you close them.


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