Ownership Structure For Multiple Locations
Question regarding proper structure of owning/operating a number of multis in a number of locations. We've gotten two schools of advice from various sources/lawyers/etc and I'd be interested as to others' feedback/experience since there's nothing like going out and doing it. Imagine you're holding a few hundred units across dozens of buildings in several states:
1. Have one LLC be the property manager that collectes rents and other fees and disburses mortgage payments, etc for all other properties/locations out of that LLC's bank account. What we've heard is pro: same liability profile as more expensive and time consuming segregation of everything...con: pierce the veil easily since members of prop mgt LLC and holding LLCs are same/all payments from all properties are commingled
2. Have each property (or if too costly, put about 15-20 untis worth of properties toegether per LLC) with its own bank account, etc. Don't have a separate 'mgt' LLC. We've heard pro: helps prevent piercing corporate veil, con: very expensive and time consuming to track, etc For example, what if the various locations need paint and carpet jobs after the tenants move out...does each location have a bank account and corporate card, etc?
We (very unfornatunately) must oursource property mgt early on....anyone with thoughts?
Here is my entity plan for my rentals. It is in place and works great although on a smaller scale currently (i'm looking to possibly close on a 180 unit soon).
Each property in it's own LLC with it's own bank account, etc. This could mean a duplex or a 200 unit complex with 9 buildings. Each property is separate. This helps you with liability protection
Start up a property management company to collect rents, do maintenence, etc. This company will bill back enough to cover fees. You can do your marketing, telephone, cell phone, internet, computers, etc all from this company. I currently have this set up as an s-corp and potentially in the future can convert it to a c-corp if I grow large enough. It works very nicely.
Into my plan further for FLIPS of any kind I use s-corps each owned by me personally. One corporation per property.
The key to this is to find an attorney who charges strictly by the hour. The attorney has already done the work after the first one and can simply instruct a paralegal to change the name of the company and print!
My plan does not take into account owning properties in different states. You may find it cost advantaged to set up one property management company to collect rents, etc in each state. Maybe all of them being owned by a Nevada or Wyoming entity.
I'm not an expert here and am giving you advise as a layman and not an accountant or attorney. You should seek competent advise from professionals here. It seems that you are going to be purchasing millions of dollars in real estate. Paying for a few hours of advise at both your attorney and accountant could save you thousands in the future.
GOOD LUCK
Thanks! A few questions (& I understand you respond as a layman, but I assume you got legal advice such that your approach took into considerations of other structures)-
1. If each property owning LLC has its own bank account - what for if the property mgt company is getting all checks and disbursing all funds (& presumably engaging in shared costs such as cell phone and property mgt software)
2. On the central LLC that collects all rents and disburses all property specifica and shared expenses - why an S-corp and not an LLC
3. I have found lawyers that charge by the hour, but one set says one thing and one set says another...but most disconcerting is the suggestion that if the members of the prop mgt company and the members of the property owning LLCs are the same (& prop mgt LLC commingles and pays across multiple property owning LLCs, then the whole thing will be collapsed and liability will go across everything you have...
Thanks in advance
dealjunky,
funny that your post is here ... I logged in to basically ask the same type of question. If there is a separate management company (let's say an LLC) that is owned and operated by someone else, there are no issues. The potential problem is that when you are the member and controlling party to both the mgmt co AND the other properties/LLCs, this is where you may get skewered. I know that the laws are in there to protect tenants etc from dirtbag property owners but I dont see why, if I manage the management company according to the guidelines (separate checking acct and all that) why this would leave me vulnerable to legal action.
I dont know what to do....
Molotov
Yeah, I don't understand it yet...like I HAVE to outsource management, otherwise if the mgt co is me and the property owning LLCs are me, then the ambulance chasers will follow me around. Like you just about alwyas HAVE to have lots of debt or the chasers will come and get all the equity like bears on honey.
I do have one LLC to have cell phone contracts and software expenses that would benefit multiple property owning LLCs, but it does no management. I don't know why there isnt a book/body of thought on this. Everything I read is 'theoretically this and theoretically that' and watch out for this. Nothing gets that prescriptive. Even if it is a stylized to a particular unique situation, i would like to see someone tell what they are doing.
My first lawyer spent thousands basically educating himself (although he said this was an area he practiced/was familiar with) on the subject and still came up with wrong and semi-useless answers. I have seen some 'gurus' discuss generically what to do, but have been left with the feeling you are experiementing and would be made a test case fro some case law text before too long. If you do a few properties, fine, but if you're going to do hundreds, someone's going to pay more attention and try to make a case out of you
-Lost as well