I answered a version of this question in another thread, a long time ago. I see it bumped up but here’s an update:
In the end, what “works” for you may be different – there are pluses and minuses to everything.
We have 1 park in Michigan and 4 in Texas. Texas parks were operating on different sets of principles that made no consistent sense from one park to another, which made it hard to compare (e.g.) expense ratio of location A with location B – “how is B doing compared to A”?
So I jumped through a bunch of hoops to try to “square” things, which I now regret because the information gleaned was not worth the hassle it caused.
In any case, we run 3 Texas parks together with 1 Texas homeCo covering all 3 locations. HomeCo is also ManagementCo – sort of. Out of HomeCo we pay our Texas regional manager, and all the park managers, and all the workers that work for park managers who rehab homes, mostly. And landscaping, etc. Whatever needs to be done.
The problem is allocating the cost of the payroll over the “Park” to which it is associated. Most of the manager’s time and energy (and the workmen too) is spent dealing with the POH or the “Homes” company, – selling homes, rehabbing homes, paperwork on homes, showings, renters, blah blah blah.
But then again, some of park manager’s salary should be allocated to the “Park” too – collecting the rent, knocking on doors, etc.
So how much of payroll should be allocated to the Park and how much to the HomesCo is the first issue. Simplest is maybe Manager salary (and “outside / landscaping” workers) paid by Park and “worker” (rehab, service call) salaries paid by HomesCo. That’s a coarse cut.
The problem is now you have 2 payrolls, 2x overhead, 2x the state employment oversight agency confusion, etc.
So we have everybody paid out of “HomesCo” which we consider to be “HomesCo + state-specific payroll/administration Co.” We have one for Texas and one for Michigan because state-specific companies that operate only within 1 state seems like a good idea.
But, oops, we have another park in Texas that is encumbered by a mortgage and to make a long story short, that park has its “own” HomesCo. So we actually have two HomesCo’s for Texas and one for Michigan. Two of those are park-specific and the third covers 3 parks.
And oops again, we have a “real” managementCO which is in California where I live.
So that’s 5 park cos, 3 homesCos/park-management co, and 1 management co that manages other co’s.
THIS IS TOO COMPLICATED!
To answer your question: In our case:
Park managers – employed by HomesCo (ParkCo pays HomesCo a “onsite mgmt fee” of [appropriate amt]). Might employ by ParkCo if manager is not doing much for HomesCo.
Utilities – ParkCo for park things, HomesCo for homes if possible.
Use on Lease – ParkCo for lot lease, HomesCo for home lease
Receive lot rent – ParkCo. Actually ParkCo collects home rent for HomesCo too – and forwards the money.
Pay expenses – whichever company the expense relates to.
[Administrative convenience in payment leads to intercompany billing which is a real hassle].
Pay myself – ParkCo AND HomesCo pay a “offsite mgmt fee” to ManagementCo which pays me and my administrative staff. I also keep whatever profit ManagementCo makes after it pays its expenses (payroll, etc).
The real question is can you explain it to the Bank? They are the ones that you are going to have to satisfy (and the gov’t). If you get too cute, it will be a pain in the ass trying to explain what you did. Accounting costs go up, mistakes are more likely and harder to identify, etc.
Here are some things that happen, though:
Petty cash – owned by the park or homeCo?
Credit Card – whose credit is it against?
What happens when you pay the park electric bill with the MGMTCo credit card? What happens when your manager deposits HomeCo down-payment money in the Park rent account? Your resident makes the check out to the wrong company? You have someone sign the wrong lease?
The point is, complication for its own sake is bad. You have to understand what benefit you are getting by setting up multiple companies.
In this case,
(1) High-value, low risk asset is the Park. It may be encumbered. You want a clean balance sheet and no hassles. Don’t put liability (rental homes) in this asset. This is your ParkLLC.
(2) Everything else goes into OTHERLLC.
(3) Maybe #2 should be state-specific or you want another company for other management/tax related reasons (but not for “extra” liability protection).
If I were advising a new person, I’d say set up “ParkCo” and maybe “HomesMGMTCo.” I don’t think you need more than that. Second purchase, NewParkCo and (a) HomesMGMTCo 2nd division or (b) NewHomeCo.
just keep HomesMGMTCo (with divisions, 1,2,3,4 and general–you pay yourself here).
If you are getting into multistate issues then that might or might not change your plan.