My plan is to run my buy and hold residential business as follows:
1) The retail side of the business will be run as an operating company (OC) that manages properties. The OC will not own any property, but will have employees.
2) The other part of the business will be a Holding Company (HC). This business will buy and hold properties, but do no property management.
The idea is that the OC will provide property management to the general public, as well as the HC. The OC will sign a master lease with the HC, such that the OC will have the right to sublet the property as it sees fit. As time goes on, I would expect to also offer a master lease agreement to the general public as well, instead of the traditional property management contract.
I would like to hear feedback on this plan, especially from people who have tried it. What are the pitfalls? How should the master lease be structured? I am considering offering a fixed lease agreement that would pay the owner whether or not the property rented. Thoughts on this arrangement?
You're over thinking it in my opinion. Set up a management business if you want to get into that business but why pay yourself to manage your own properties? All you are doing is moving money from one pocket to the other and creating a taxable situation and more money for yourself. Do you own any properties yet? Just get a PO box and a cell phone and you are set up to manage real estate. I don't even have a PO Box. All my tenants (25 of them) know where I live and they see me at the grocery store and they wave when I drive by them on the street. Even with your public management company, just write up a simple management agreement. You sign it and your client/customer signs it. They hire you and pay you X% of rental income for management services and you charge them one month's rent for each lease you negotiate. All leases are in the owner's name. Why do you want a master lease of somebody else's property? The less documents you sign and are legally responsible for the better.
You must be a BiggerPockets member to post on the forums
Join the world's largest, most open Real Estate Investing Community online, 100% free forever!