The personal guarantee is your agreement for the bank to pierce your LLC’s veil to obtain your personal assets in the event that you default on your loan.
But Joe Blow who trips on your curb, breaks his leg, and sues your LLC for damages could not use the loan your LLC has on the property with the bank as an example of you intermingling personal funds with the LLC’s money. That could only be done if you have other bad behavior that demonstrates piercing the veil (e.g. writing off your wife’s car as an MHP expense).
If you’re really concerned check with your attorney. I am not one.
So let’s simplify, because I am still lost with too much info.
I am a single owner (no business partners)
Obviously I want to set up each park in its own LLC, for my own legal protection–no questions here.
I may buy more parks but not sure. At this point a separate MANAGEMENT LLC is not needed from what I am reading here.
But a separate LLC for the park (PARK LLC), and the homes (HOMES LLC), seems wise to separate the risk. KurtKelly recommends even a third entity for the notes. In my case, its about 5 homes for about 20k , so not sure this justifies yet a third entity.
I usually have my LLC’s, partnership and individual, setup to do be taxed as an individual because otherwise, after a certain point (reasonable salary) you start overpaying on medicare, etc… but it sounds like for loan purposes, it is better to use my wife as a partnership so we get a k-1. Is this right? Mind you, filing taxes on a partnership requires a k-1 and costs $1k+ per year (maybe someone can recommend a lower priced, yet good accountant).
I understand using docs, and accounting statements on both LLCs, to do transactions between entities, so that they will be viewed as such.
Addtl. Questions:
Which entity/ies are tenants making checks out to? PARK, MANAGEMENT, HOMES, NOTES, etc…?
Following the last question, do I generally need bank accounts for each? Seems a bit tedious to manage so many accounts/cards/etc…
It sounds like it would be better to have my wife be on one LLC (e.g. PARK LLC), and I on the other (e.g. HOMES LLC), because if one gets sued, the other is unaffected due to different ownership. Correct? Even then, I am limited in this case to two people, so I am guessing one on the PARK (high value asset), and the other on the remainder (low value)?
However, my name on one entitiy and wife on the other conflicts with the other goal of having both people on a partnership LLC for taxes (separate income statements from personal).
Naming the parks in this case: Does it matter? For simplicity, I was thinking “street name + PARK LLC” and “street name + HOMES LLC”.
Eventually, I want to setup a trust, but not sure it matters at this step because I just closed on the first park.
Paying myself: Out of which account am I paying myself, and does it matter if its separate from funds I am saving for buying other parks or investments?
Moving cash out of business account: Would seem wise to keep funds from building up in the main business account(s). So, would I have yet another bank account, or even LLC, to park this?
You say, consult a an attorney? I cant tell you how many completely wrong attorneys I have hired, even if they said they were very experienced.
I believe just having husband and wife as owners will not create a taxable partnership because you already are viewed as a single entity for tax purposes. That said, it might not be so important to create a separate taxable entity as long as you have the formalities of a separate company.
Tenants should make lot rent out to Park company. Yes you will need a separate bank account for each entity. Ideally you would have home rent paid separately to Homes company but we don’t do this, we just account for it in our books. I wouldn’t create a separate company just for 5 notes, but I would hold them in Homes co. By the time you get to a dozen notes maybe a sister company is a good idea.
Names - doesn’t matter.
Paying yourself - unless you are an S-corp, you cannot employ yourself in a partnership. Your “earnings” are taken as a distribution (or dividend) when there’s spare cash. You will be taxed on your taxable profit (gross income less tax-deductible expenses) without regards to how much cash you take out it leave in.
You should indeed take money out to avoid it building up in the business, but you should leave enough working capital. You’ll find a middle ground (take $5k when there’s more than $10k in the bank for example). You can always (you will have to!) put money in for big expenses.
Don’t name an LLC a silly or potentially offensive name (ex. Poor Schlubs LLC). Name it something that won’t negatively affect you in a courtroom or in some public filing
Separate LLC’s for homes, real estate/park ownership, management companies, and Note holding are fine in practice, but too many creates more expense than the additional loss control may be worth. I like the ideas above, but not for a park owner with 1-3 medium to smaller parks
I like separate Federal Tax ID’s/FEIN’s for my entities. It’s easier to keep track of for me and banks tend to like them better. It’s just another K1 on my personal tax report so not much more work
If you are going to set up separate LLC’s for risk management purposes, you must treat them as separate businesses. For example, If ABC, LLC owns the park and XYZ, LLC owns the homes, a tenant in a park owned home can make one payment (ex. $800) to either entity, but the recipient LLC (ex. ABC LLC - site rental $400) should write a check to the non-recipient LLC (ex. XYZ, LLC - rental home rental $400) for the portion of the payment related to the to the rental home
You really need to attend one of Pete Fortunato or Dyches Boddiford’s classes to fully understand.
But in a nutshell:
Land Trusts will make you anonymous. Only your Trust’s Trustee will be exposed to the public
Land Trusts circumvent probate
As regards forming an LLC, whether you have a land trust or not, an LLC shields your assets in the event you get sued. You don’t ever want to own real estate (or most anything else) in your own name.