Should I form a Management Company for our Assets?

[Sarah Humbargar]

We are soon to have 4 units between 2 properties and at this time I self manage everything and will continue doing so into the foreseeable future. We've received 2 different legal recommendations and are trying to decide what our best option is. First was to just put each property into its own LLC and have your leases under the ownership company. Second is to put each property into its own LLC but have a contract with a separate management company, which we also own, to further reduce liability. I am assuming that the second option only becomes necessary when we have a lot of units and we are still self-managing. Are there other better options I am missing? What's the best approach with a small number of units, with the intent to grow our portfolio?

[Richard Sherman]

@Sarah Humbargar I am not sure you need either of those yet. Would not be bad to have an LLC for them, but I would probably not put them in different LLCs unless the equity is over $500k or so, something like that. You do not need all that complexity yet (i.e. if the LLC is owned by more than 1 person, even if spouses, then you need to file a separate tax return as well etc.

If it were me, I would have 1 LLC with a single owner (even if married) and the income will just be on your Schedule E on your tax return, no need for a separate return. I would have the leases done with that LLC. I would make sure to have a good umbrella insurance policy, probably 2 million or so. That might run you $300-500 a year maybe