Flipper/Rehabber · Anaheim, CA · Member since 2010 · 188 posts · 118 votes
I have a number of rentals under multiple LLC’s. Does anyone have experience setting up a separate entity to manage the properties? I heard 2nd hand from an attorney that we would need a broker’s license in the state of the properties to do this. Is this correct? It seems a little absurd that I would need a license to manage my own properties. The reason I was hoping to set up the management company was to avoid having to write multiple checks from all the LLC’s. For example, if I have a guy mow a few dozen lawns, it would be quite obnoxious to have to write him 10 separate checks per month. I figure if I have one management company, I could just write one check. Before I shell out more money to talk to another attorney does anyone have any practical experience, thoughts or recommendations?
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
15y
Let me start by saying a couple things, I don't have a law degree and your attorney does, especially in Cali, secondly I understand why he said that, but there are ways around it I would think.
1. An individual hired in a company usually does not need a license, only if they are a leasing agent, representing different owners. Your MGT LLC should not be required to have a license (and you) if those are the only properties it does.
2. You could make the MGT LLC a member of the other LLC.
3. You might convey a small percentage to the MGT LLC so that it has an ownership interest, but limited so that any liability issue would have little to gained.
4. You could take the application and execute the lease under one company, limiting the involvement in the operations and perform all other activities in the MGT LLC. (RE License is only for the leasing of the property).
5. You could form the MGT LLC and just do it. If you ever had an issue, like an eviction or seeking collections, the owner LLC would need to perform that. If the CAREC had a problem with that they would most likely issue a cease and desist order under those circumstances, since you own both LLCs.
Probably the best thing to do is to call the real estate commission and ask, explain you would own both companies. Just know thatwithout the MGT LLC being able to act as an agent, in court actions, building permits, etc. need to be accomplished by the owner of record. Good luck
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
15y
Let me start by saying a couple things, I don't have a law degree and your attorney does, especially in Cali, secondly I understand why he said that, but there are ways around it I would think.
1. An individual hired in a company usually does not need a license, only if they are a leasing agent, representing different owners. Your MGT LLC should not be required to have a license (and you) if those are the only properties it does.
2. You could make the MGT LLC a member of the other LLC.
3. You might convey a small percentage to the MGT LLC so that it has an ownership interest, but limited so that any liability issue would have little to gained.
4. You could take the application and execute the lease under one company, limiting the involvement in the operations and perform all other activities in the MGT LLC. (RE License is only for the leasing of the property).
5. You could form the MGT LLC and just do it. If you ever had an issue, like an eviction or seeking collections, the owner LLC would need to perform that. If the CAREC had a problem with that they would most likely issue a cease and desist order under those circumstances, since you own both LLCs.
Probably the best thing to do is to call the real estate commission and ask, explain you would own both companies. Just know thatwithout the MGT LLC being able to act as an agent, in court actions, building permits, etc. need to be accomplished by the owner of record. Good luck
Real Estate Investor · Sacramento, CA · Member since 2008 · 566 posts · 356 votes
15y
You don't need a license to manage your own properties and you don't need another legal entity. If your LLC's have multiple shareholders, then you are likely already required to be licensed, regardless of number of LLC's.
The legal structure is simply risk management tied to the tax scheme of things. Bottom line, they are all yours and the checkbook the checks are written from is meaningless, as long as you've accounted for things accordingly. You could even write the check from your personal checkbook, credit contributed capital and debit the expense in each LLC if you like.
In your example, as long as you've got the required support (billing), nobody's going to care how that expense gets allocated through the LLC's come tax time.
While, I too, can proudly declare I'm not a Lawyer, or a CPA, I do work in large companies, and have done cash accounting and inter-company accounting with boatloads of legal entities in multiple countries, holding companies and the like. And they all shared one thing in common: One checkbook (well, per country, anyway, which is really to say, per currency).
Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
15y
It sounds like some type of maintenance entity might work too. Does it even need to be an LLC or just some type of separate acct that all your properties can pay for repairs etc.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
15y
It depends of what business you will perform. There are several considerations IMO.
One is taxes, not only selecting the right tax entity but also the right activity. If you end up making more in a construction activity and your selected rental management, you could have problems.
You should also plan you company looking down the road as to what you might do, like taking in a partner on a deal. Setting up classes of memebership to the company means you could have a partner without giving them certain rights, such as voting, great for a birddog.
Then consider liability. Construction is more risky than landlording. Problems may arisie when you obtain your liability coverage as your insurance company classifies your company for premiums to the type of business.
While in all states, the standard verbage for filing Articles of Incorporation includes "conduct all business permitted by lay" (or similar wording) if the business activity is considered too far off your stated business purpose it may be disallowed by a court and say that you were acting individually and not under the Articles of your business.
Just because you have an LLC doesn't mean you can conduct any business you like, it should be closely related, usual and customary.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
15y
Hoyt, you're right, except that corps are seperate entities, just like individuals, if that corp does not own the property and another corp does the management, the MGT Co. could be required to have a license, which in turn means that all officers of the entity may need a license as well. The fact that the corps have the same sotckholders or members does not matter, they are treated as seperate individual entities.
So, as I mentioned above, putting one entity in the other solves the issue of an owner manangement situation.
Comingling your private money with that of your LLC is a good way to lose the liability protection afforded. You nev want to pay for company items with your personal account or deposit company income to your personal account. You make a contribution to the capital account with private funds and then write a company check. Or, deposit income to the company and write a check to yourself from the drawing account.
The degree to which you keep your personal life seperate from the life of your business entity matters a great deal.
Cary, NC · Member since 2011 · 34 posts · 16 votes
15y
Check with the Real Estate Commission in your state. What you're saying makes complete sense but if you're managing a certain amount of property, they might have some rules that you'll want to be in compliance with.
Real Estate Investor · Pickerington, OH · Member since 2009 · 38 posts · 11 votes
15y
I don't know if this is too simple but I have one business account I call Main and then separate accounts for each property. I transfer the amount needed for maintenance for each property account into the main to make payments to contractors.
For example, when I have the HVAC systems inspected each year the contractor will charge $45 per property. I simply transfer $45 from each property account (noting the expense type for taxes) into the main account. Then I write one check from the main account to the contractor.
Real Estate Investor · Milwaukee, WI · Member since 2008 · 1k+ posts · 671 votes
15y
I have a MGT company that is the agent for repairs and collections. It has two bank accounts. A General and an Escrow. When you have a lot of properties it makes no sense to have two bank acccounts for each property.
Make sure you file all of your papers by LLC/property (mine are all in their own LLC) for tax time.
Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
13y
Somebody somewhere in my reading mentioned having to have insurance on a MGT company doing your own rentals. Would this be necessary with and/or without properties managed professionally for others. In other words, do you need insurance if it is created initially for your own properties?
Rental Property Investor · Winslow, ME · Member since 2008 · 826 posts · 281 votes
13y
Before I got into RE, I had (and still have) a lawn care business called "LaVoie's Landscape Mgmt." It is an Scorp while my properties are held via LLC (single member) and using schedule E's. My Lawn care biz owns my truck, etc. and so I use that business as a conduit for all "in house" repairs and maintenance and in fact the RE pays the LC co a "mgmt fee". This is handy because I use my lawn care company to fund our retirement accounts via payroll deduction. This is hany because (my understanding) is that schedule E RE income doesn't always count as "earned" income for the purpose of IRA contributions. BUT if you pay an SCORP then write a paycheck to yourself from the SCORP, you have earned income.
Rental Property Investor · Winslow, ME · Member since 2008 · 826 posts · 281 votes
6y
I have since retired from the lawn care business so we set up a management LLC. My wife owns the management LLC and I own the LLC that owns the buildings. I then have a web design and hosting company as well, which I own (LLC). So to turn RE income into taxable income, the property LLC pays my wife's mgmt. company and the property LLC pays my web company for design, hosting and consultation. We have errors and ommissions and professional liability on both. I hope this helps. My wife handles all leasing and tenant placement via her mgmt. company.
thanks for sharing. How do you handle expenses like property tax, insurance, and maintenance expenses of the property within the management co? Does to mgmt Co send a bill to the property LLC or is it part of the management fee?