Property Management Company Startup Questions

5 Replies

We currently have an LLC that holds our residential rental properties. Tenants pay rent to that LLC, that LLC pays the property taxes, and that LLC hires contractors/handymen. We do pretty extensive renovations after purchasing a new home -- (single families and duplex) -- My insurance agent has suggested that I start a new LLC for property management. The property owning LLC will maintain basic home insurance on each individual property while the Property Management LLC will keep a larger umbrella policy with $1 million of liability. The new property management LLC will begin hiring/paying the contractors in order to protect our assets and put all the renovation work under the larger umbrella.

A couple of legal questions:

1. If my property ownership company is named (for example) Luke's Houses LLC....can my property management LLC be named Luke's Houses Property Management LLC. My worry is that the similar names will make the companies "linked" in the eyes of the court if we are ever sued? Does anyone see a problem with this similar company name scenario?

2. I often hire neighborhood handymen to perform small tasks for me. Sometimes I pay in cash or even hire a 16 year old to do some landscaping or simple paint jobs etc. If I have a liability policy under the management company, are these hires (and myself) protected under my new insurance umbrella? Anywhere from laying down some mulch, to repairing concrete steps, to patching some roof flashing. I try not to hire unlicensed/uninsured people to do jobs which might require a permit....but stuff happens and I've had some bigger jobs done by these guys. How can I protect for an accident?

3. Is there any benefit to having new lease agreements written using the Property Management's LLC. Having tenants now pay that company rather than the property "holding" company LLC that I currently use.

I appreciate any insight or personal experiences here. As we've grown over the last 2 years, I need to figure out how to keep growing while also protecting my assets. Does anyone else have two separate LLC's formed...one for holding properties and one for managing/renovating them?

Thank You

Originally posted by @Luke Langhals :

We currently have an LLC that holds our residential rental properties. Tenants pay rent to that LLC, that LLC pays the property taxes, and that LLC hires contractors/handymen. We do pretty extensive renovations after purchasing a new home -- (single families and duplex) -- My insurance agent has suggested that I start a new LLC for property management. The property owning LLC will maintain basic home insurance on each individual property while the Property Management LLC will keep a larger umbrella policy with $1 million of liability. The new property management LLC will begin hiring/paying the contractors in order to protect our assets and put all the renovation work under the larger umbrella.

A couple of legal questions:

1. If my property ownership company is named (for example) Luke's Houses LLC....can my property management LLC be named Luke's Houses Property Management LLC. My worry is that the similar names will make the companies "linked" in the eyes of the court if we are ever sued? Does anyone see a problem with this similar company name scenario?

2. I often hire neighborhood handymen to perform small tasks for me. Sometimes I pay in cash or even hire a 16 year old to do some landscaping or simple paint jobs etc. If I have a liability policy under the management company, are these hires (and myself) protected under my new insurance umbrella? Anywhere from laying down some mulch, to repairing concrete steps, to patching some roof flashing. I try not to hire unlicensed/uninsured people to do jobs which might require a permit....but stuff happens and I've had some bigger jobs done by these guys. How can I protect for an accident?

3. Is there any benefit to having new lease agreements written using the Property Management's LLC. Having tenants now pay that company rather than the property "holding" company LLC that I currently use.

I appreciate any insight or personal experiences here. As we've grown over the last 2 years, I need to figure out how to keep growing while also protecting my assets. Does anyone else have two separate LLC's formed...one for holding properties and one for managing/renovating them?

Thank You

If you are running the company it doesn't matter if the names are or are not linked or similar. It's called piercing the corporate veil and it's not difficult in anyway. What you need to focus on is ensuring you are always in compliance with building codes and hiring licensed professionals to do things like electrical, plumbing and HVAC. On top of that I recommend a liability policy of at least $300,000 on everyone of your properties. 

Luke,
Your question is definitely in areas that you need an attorney to answer.

I did see one thing that made me want to caution you. You mention 0n '2" that you are hiring people for cash. You need to check on that states Workers Comp. laws. It is likely, that if they are injured, they will put in a workers comp claim against you. It is likely that either you will need Workers Comp. insurance.

@Luke Langhals .

@James Wise and @John Mocker provided good responses. To add clarity to Jame's 'piercing the corporate veil': since you are the individual behind both LLC's there would not added protection if you were to go to court. If 'PM' did something then 'Investment' LLC could be held liable as well.

I would definitely seek an attorney and CPA for the benefits to creating separate LLC's. In your leases you would need to clarify one as the landlord and other as PM. If you switch over to PM LLC, create an addendum to your leases. This is probably a tax benefit more than anything else.

Why don't you just get the umbrella policy in your name or the owning LLC name? I think your insurance agent might be trying to sell you something for his/her own gain.

Thank you for the assistance everyone. We now have a property management LLC with an umbrella policy. This will allow me to do small work for outside clients, as well as manage my own rentals under one insurance policy.

Workers comp insurance will be needed soon. Thanks for the tip John and you're correct.