All Forum Posts by: Rachel Mazzanti

Hello!

My husband and I plan to start managing a rental property. We are currently under contract on a new primary home. We are keeping our current home as a single family rental. This made the most sense for us with a growing family and our local housing market.

I have a few questions about the accounting/bookkeeping side. I have read some books and looked at other resources, but reaching out here to see if there are other considerations or perspectives I have missed. 

1. Recommendations on need to start an LLC for a single rental property? Versus starting a separate bank account in our personal names to use for the rental property?

3. Programs/apps to track and manage receipts, invoices, income, deposits, expenses, etc. Ideally, one that doesn't cost a lot so we can maximize cash flow at this time, but one that we could get used to and scale easily in the future. We want to set ourselves and prepare for acquiring more properties over time. 

 Thanks!

How do you pay an accountant for tax consulting? Is it an hourly rate? Or a monthly fee and you can ask questions anytime? I’ve never had an accountant but the more I learn, the more I see how important a real estate savvy accountant can be! The BP tax books are a great start, but I’m going to need a pro.  Thanks for any suggestions! 

This is my first time filing taxes and having investment properties both purchased late last year. Normally my wife does our taxes through Turbo Tax and that’s what we are planning on doing this time as well. 

But what do you guys think? And does anyone have a good recommendation for an CPA in the Nashville area? Thanks! 

Thanks @Rachel Mazzanti! :)

Sure. That is how I felt after speaking to a CPA and two attorneys, and one recommended an LLC per property. I'm neither a CPA nor an attorney so this is definitely not legal advice, just what I have come to understand. Creating an LLC and paying your Secretary of State does not give you magical legal separation. Your property has to be OWNED by the LLC. This means you have to get business insurance, keep business accounts separate, separate business bookkeeping, and not touch that money for personal reasons unless you do it a very specific way.

If you already own the property personally, you have to transfer/donate/sell it to your LLC.  That could trigger a due on sale clause with your current mortgage and the bank could force you into refinancing into a commercial loan with higher rates and shorter term (all I hear is less cash flow).  Everyone says they've never heard of this happening, but why knowingly breach a contract??

If you're purchasing a new home, you must do it with some type of commercial loan from the beginning like mentioned above.  I hear some people actually purchase in their personal name for better terms then transfer to their LLC after closing.  This seems risky becuase you have no clue who will own that note the day after closing and how wiling they will be to allow this donation.

The happy median I've found, and the only way I would use LLCs in the future is with a holding LLC for each property and a single Property Management LLC that runs the business, manages the properties, records income/expenses/debts for all properties, and pays the "owners" of all properties involved.  This seems like the simplest way of keeping everything legit in case you end up in a courtroom, but still does not seem very simple at all.  How do you pay all of the "owners" of each property?  You would still need to maintain a large number of separate books for those entities, as well as annual/quartly meetings, filings, etc. for each entity.  The accounting may be easier, but far from simple.  That is why I dropped the idea and will leave it up to a professional when/if that day ever comes.

Browse the forums a little more.  You'll see lots of veteran investors who do not recommend any LLCs unless you have large multifamily/commercial property or significant net worth.  A large sum of insurance has been perfectly fine for investors over the years, and I would love to hear a story where that proved otherwise.

 This seems like the ultimate strategy for asset protection so this is what a lot of CPAs and attorneys will recommend.  They fail to mention that you need to be a part-time trained accountant in order to maintain the requirements of legal separation. My CPA told me the same thing. Just make an LLC per property. You'll find a lot of people on BP that do this, and a lot of people that think it's nonsense. There is no right answer. You just need to decide how much time you want to spend maintaining a business vs. having enough insurance to allow you to sleep at night. If you have a significant net worth, by all means get more protections in place. At that point though, I would be hiring someone to handle all of that for me.

To answer your question, Ponni, I would do it all at once.  Take the hit once instead of spreading it out over time.