Property Mgmt Laws in CA - managing other peoples' rentals

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Property Mgmt Laws in CA - managing other peoples' rentals

Justin R.
Developer · San Diego, CA · Member since 2015 · 1k+ posts · 1k+ votes

Hellllooo BP Nation!

One of the interesting side effects of (successfully) owning and self-managing a bunch of your own local rental units is that friends and family may ask you to manage theirs.  Has anyone (who isn't a professional and licensed property manager) agreed to do this for a family member?  

In CA, one must have a license to perform the activities of property management UNLESS (https://www.kts-law.com/property-management-compan...)...

(A) The activity is done without compensation or

(B) The property is owned by the person doing the management

So, if your family member is willing to grant you an equity interest in the property, would you feel comfortable that you're managing within the law?  50% stake?  10%?  5%?  1%?

I realize this is a lawyer question, but wondering how others have approached this situation.  TIA!

@Dan H.@Casey Murray@Katie L. come to mind as people who may have experience with this.

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Katie L.
Attorney and CPA · San Diego, CA · Member since 2017 · 590 posts · 422 votes
8y

@Justin R.

Can’t say I’ve had to deal with it personally but gifting or selling a part of a property comes with several implications: how to take title, right of lender to call the loan, right to partition, gift tax, property tax reassessment, capital gains, etc.

Also, I’m not sure how accurate that link you attached is with regard to the current law but your 2 bullet summary above seems to leave out some other options. You might want to look into the power of attorney option they have listed there. I’m not sure if that’s a valid option so do not take any of this as advice but seems that would be a simple fix to your question.

*none of this post is intended to be legal or professional advice and does not create an attorney-client or cpa-client relationship. Readers are advised to seek professional advice.

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  • Katie L.
    Attorney and CPA · San Diego, CA · Member since 2017 · 590 posts · 422 votes
    8y

    @Justin R.

    Can’t say I’ve had to deal with it personally but gifting or selling a part of a property comes with several implications: how to take title, right of lender to call the loan, right to partition, gift tax, property tax reassessment, capital gains, etc.

    Also, I’m not sure how accurate that link you attached is with regard to the current law but your 2 bullet summary above seems to leave out some other options. You might want to look into the power of attorney option they have listed there. I’m not sure if that’s a valid option so do not take any of this as advice but seems that would be a simple fix to your question.

    *none of this post is intended to be legal or professional advice and does not create an attorney-client or cpa-client relationship. Readers are advised to seek professional advice.

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  • Christine Kankowski
    Real Estate Broker · Temecula, CA · Member since 2014 · 992 posts · 782 votes
    8y

    I had the same thing happen to me, but I ended up  adding a property management certification to my real estate license, made sure my broker allowed and was insured for property management and made it completely official. Then I was also able to charge and do the entire thing professionally. (Temecula, CA)  Now we are a full fledge property mgmt company, members of NARPM,etc. 

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  • Justin R.
    OP
    Developer · San Diego, CA · Member since 2015 · 1k+ posts · 1k+ votes
    8y

    @Katie L. Many thanks for the input.  In this case, it's a cousin who's moving over seas permanently.  They want to keep ownership of the property and there's no loan on it.  They'd like me to handle it.  I'd like to help them out.  Assuming it's a small percentage (ie 1%) I don't see a tax implication.  Reassessment would be ... undesirable.

    There's also a bulletin posted on the DRE site (from 2016) that talks about this subject as it relates to short term rentals (but they cover all mgmt cases):

    http://www.dre.ca.gov/files/pdf/adv/LicenseeAlert2...

    The "power of attorney" thing has an ominous "don't use these provisions to circumvent the requirement" clause.  This feels like circumventing the requirement.

    Feels like an ownership stake would be the strong way to do this.  Ugh.

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  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    8y

    Seven of our units are actually extended family units owned by step dad. 3 of those units use professional PM (2 STR and one OOS). Of the other 4 units they are mostly managed by my brother except the finances. Basically everyone helps where they can but the official PM has to be my step dad for those properties because he is the owner.

    We are not looking to take on additional PM duties or provide ownership interest in our units so I have not looked into it but based on your synopsis I would feel fine at a 5% stake. To me that still qualifies as owning. 

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  • Justin R.
    OP
    Developer · San Diego, CA · Member since 2015 · 1k+ posts · 1k+ votes
    8y
    Originally posted by @Christine Kankowski:

    I had the same thing happen to me, but I ended up  adding a property management certification to my real estate license, made sure my broker allowed and was insured for property management and made it completely official. Then I was also able to charge and do the entire thing professionally. (Temecula, CA)  Now we are a full fledge property mgmt company, members of NARPM,etc. 

    Though I have no interest in the transactional job of real estate, these sort of things (doing management, easy access to properties on the market) make getting my license more and more attractive on a practical level.

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  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    8y

    This is along the lines of another 'ninja in training' idea, but I may have heard of someone being an 'administrative consultant' for another, not a PM.

    There may be a few distinct things one cannot do without being licensed. My friend wouldn't place or remove tenants without owner approval or hold security deposits. My friend was never compensated as a %, either.

    My friend may have had an option to buy the property they were consulting on. It may have been at a make me move price +. It may have been notarized but not recorded.

    But I wouldn't know. My training is not yet complete...

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y

    master lease then your sub lease..

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  • Casey Murray
    Investor · San Diego, CA · Member since 2015 · 290 posts · 80 votes
    8y

    @Justin R. I’ve never managed property for family/friends but certainly feel it’s beneficial to have your RE license to make everything easy. Avoids tip toeing around all the do’s and do not’s. That way you can legally receive compensation for your services and better yet, you’re well positioned to list/buy properties for family/friends going forwards. Knowing your in depth knowledge of real estate, you’ll breeze through the RE license process. 

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  • John D.
    Rental Property Investor · La Quinta, CA · Member since 2014 · 1k+ posts · 779 votes
    8y

         Master leasing, or working as a property consultant, are both reasonable ideas in my mind.  You could master lease for say 10% of the revenue, with the right to sublease to tenants and pass the other 90% to the homeowner.  At the end of the day, I'm not sure who is going to object to you performing these types of services without a license.

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