Separate LLC for Rental Property and Property Management Co.

[John Welchen]

Hello All,

I'm new to the BP forum and new to real estate investing. So I'm curious to know if anyone has experience/knowledge about keeping your rental property and property managment company. Lets say I have 3 properties that I'm fixing up for rentals(all under LLC 1). I had planned on going with a property management company but decided that I will manage my own properties (start a PM comany LLC 2). Should I create 2 seperate LLCs for for both business ventures? Are their any benefits in creating multiply LLC's for this purpose? Has anyone had any experiences?

[Mike S.]

The interest to have two different entities for owning and managing properties is that you can have them taxed differently.

Your management entity could be a C corp or an LLC taxed as a C Corp. You can then get the fringe benefits allowed to a C corp (medical expense reimbursements, qualified retirement plans contributions, ...). Depending on your goal, you will structure your C corp duties/management fee to make as much or as low money as you want to achieve your objective. You will also use it to deduct most of the allowable expenses.

You will have to file a separate tax return, but its a small price vs benefit.

Last, on the asset protection level, some of the actions filed against you may only concern the management side of the business and won't affect the asset in your other LLC.

For just one rental, it may be too complex of a structure to create. But it will always be a question of cost vs benefit that only you can ultimately answer.

And I forgot to mention, no, an umbrella insurance is not the same thing :-)