Should I create a property mngmnt company for my own properties?

Question

I am curious: is anybody here who self manages their property but registered a property management company for it? I am considering creating one, not in order to get other clients, but for two reasons:

1. easier to tell clients that I am just the manager

2. financial: possible expense deduction for management payments, etc.

I did not look into this yet, or research it thoroughly, plan to do it soon. But I figured it would be interesting to see what others think. Thank you.

Hubert Kim · Answer

Starting a property management company, or any company actually, is generally not that simple, easy and inexpensive. If your state does not require licensing, it may still require processes that you may not normally take part in regarding documents, bank accounts, accounting, etc. If your state does require licensing and you hire a broker to fulfill that requirement and/or perform the duties, what happens if the broker does not work out?

But before any of the above, there may be start-up costs and typical costs of doing business that may negate any potential benefits you may realize. For example, in California the cost of registering a typical business entity is $800 per year. If you have any employees, you must have worker's compensation insurance and pay payroll taxes. You may need an attorney for an employee agreement. The list can go on and on.

Dan Moore · Answer

I agree with @Hubert Kim. I agree with paying yourself, but that doesn’t mean you need a company to do so. You can pay yourself as a sole proprietorship or by taking a distribution. Adding in the cost of more accounting, tax returns (yes multiple) and licensing just makes the job harder for no real gain. Plus you loose flexibility.

For instance, we just purchased a SFH for a rental. The basement is completely finished and nicely done and adds two bedrooms to the rent greatly bumping the rental rate. But the ceiling height is 2” below what the rules require to count the space as rentable space. Otherwise it is a perfect space.

A realtor, or a professional property manager cannot list the basement as part of the space. I can. I’m not a professional property manager. Therefor I get 2100 mo rent instead of 1400.

Alan G. · Answer

Attila,

To answer your question, yes. I hold 10-15 properties in each of my LLC's. I also have 1 LLC that handles the property management itself so no matter which LLC actually owns the property my tenants always pay the management company. This also lets me tell everyone that I just work for the management company and not the owner of the property. (even know its one and the same). No one really ever sees the actual holding LLC but I like everything standardized.

At least in the state I'm in, Pennsylvania, you don't need a real estate license to manage your own properties.

Alan

Joshua Roberts · Answer

Here in Florida you do not need to create a PM brokerage in order to manage your personal assets. Therefore you do not need a real estate license or qualifying broker. If i were you, the only advice I would listen to regarding the management expense deductions, would be from a CPA.

Alan G. · Answer

Attila,

To answer your question, yes. I hold 10-15 properties in each of my LLC's. I also have 1 LLC that handles the property management itself so no matter which LLC actually owns the property my tenants always pay the management company. This also lets me tell everyone that I just work for the management company and not the owner of the property. (even know its one and the same). No one really ever sees the actual holding LLC but I like everything standardized.

At least in the state I'm in, Pennsylvania, you don't need a real estate license to manage your own properties.

Alan

Ali Boone · Answer

I don't see why you would need to form an official property management company. Seems like that would just give you added expense and hassle for no real benefit. For #1, you can tell tenants whatever you want... you don't need an actual entity to do so. #2, you will write-off all your expenses anyway so what difference?

Elise Bickel Tauber · Answer

From my understanding, where I'm located in Pittsburgh, if you become a property management entity and the entity does not own the property, you must be registered with the real estate commission which does require a licensed broker (not sales agent) and business location that must be inspected by the real estate commission. I know of a lot of property management companies in Western PA that are not properly licensed and registered and the commission is cracking down. Not sure if your location(s) have different laws.

Attila M. · Answer

That's very interesting @Alan G. I need to look into it. I did read that managing my own rental properties does not require real estate license, but I kind of assumed, if I am a separate entity (LLC), that would not apply.

If that actually works, I might do it. The scenario @Marko Zlatic described (unfortunately : ) ) does not apply to me but I still feel that it gives the feeling for people that the property is managed professionally and people are not aware that I own the place, which I would prefer...

Kris L. · Answer

Does that include if your own LLC owns the property though?  That's what I haven't quite been able to figure out.

Marko Zlatic · Answer

I worked in commercial real estate for a developer who was an owner/operator of their own properties. We owned and self-managed 750,000+ sf of office, 130+ Class A Apartments, and senior living facilities.

We had the scale to manage ourselves, not sure if this does/would apply to you.

Should I create a property mngmnt company for my own properties?

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