How do I make my LLC into a brokerage?

Question

Hello fellow people of BP! I am looking to get my broker's license in Illinois so that I can manage/lease rental properties (for myself and other owners) so not really as interested in the sales aspect but I want my LLC to be a brokerage so that I am not working under a different managing broker and paying fees. Would anyone be able to clarify how I can make this happen or is this even possible? I know that if you are a managing broker (broker for two years and extra coursework) you can also act as the sponsoring broker but are there any work arounds for the time being?

Drew Sygit · Answer

@Joseph Palakeel in Michigan, once you get your broker's license you MUST then also get an Associate Broker's license for the LLC/PMC.

Most PMC's have 3 bank accounts, one for Operating (which all rents and expenses for properties are paid out of), a Security Deposit account (self-explanatory) and finally a Company account where your earned fees are transferred to and you pay Company expenses out of.

You should join www.NARPM.com where you can get these & more questions aswered by fellow PMC's.

Joe Norman · Answer

Since you will be getting an agent's license, and working under a broker, it will be really up to them. While you're interviewing different brokers (which you absolutely should do), be sure to ask them how they would handle this situation. Do they even allow property managers to work under them? If so how do they handle PM's trust accounts - do they need to be with the broker's bank and under the broker's name? Does the broker have to have access?

Some brokers will be very comfortable with PMCs, others won't touch them with a 10' pole. You need to go to the source and ask them. Good luck!

David M. · Answer

@Joseph Palakeel

Well, it seems like you understand that there are two levels of licensure, whether you call it broker and agent, or managing broker and broker.  however, you can't get around it.  if you only have an agent's license, you have to hang your license with a broker.  I don't believe there is anyway around that in this country.  To make a LLC a brokerage, you would need the "higher" level broker's license so that you could register yourself as a broker.

Joseph Palakeel · Answer

Yes, I understand that but I think I may not be correctly conveying my question so let me reiterate.

The main reason I want to get my broker’s license is so that I can start a property management company in order to manage the assets of other real estate investors. Once I acquire my broker’s license, would I need to create a new bank account to collect rent solely under my name (Joseph Palakeel) or would I be able to start an LLC (management company) and subsequently collect rent to the associated bank account (under the name of the company). My question is really just clarifying if I would actually be able to create a management company right after I received my broker’s license or whether I would need to hold my active brokers license for 2 years in order to become a managing broker and therefore sponsor the LLC as a property management company.

Does that make more sense or am I just confusing things more? I am new to the terminology so I just want to make sure that all my I’s are dotted and my T’s are crossed before jumping in.

David M. · Answer

@Joseph Palakeel

I think you are overthinking this or confusing with other information....  The owner/landlord of the property would be the one accepting payments.  So, if you own it personally the cheque would be drafted to your name and you would deposit it into your personal checking account.  If you had a property manager or a separate LLC or something leasing out the property for you, then the payments would be drafted in their respective name to be deposited into their account, to be later remitted to you somehow.

The "trust account" is something that most brokerages have but that is for doing real estate transactions.  For example, brokerages might hold onto the Earnest Money Deposit that a buyer puts down for purchasing a house.  The brokerage can't deposit the money into their business account because its not really their money.  So, that is what a Trust account is used for.  Attorneys have the same thing, and that usually called an escrow account or "holding the funds in escrow."  However, at least in my market brokerages no longer hold onto monies because its just too complicated.

Joseph Palakeel · Answer

Thanks, David! That makes sense, that is how I thought it would go. I spoke with a broker earlier today and they clarified that. With regards to accepting payments, how would you collect rent from tenants (into who's bank account must it go)? I have seen a few things about a trust account but can that account be in your name or does it need to go to a trust account that is in the name of the brokerage which holds your license?

How do I make my LLC into a brokerage?

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