Should I start my own property management LLC

Question

Hi,

I have a few multi family properties and I manage them myself.  I have following questions around how to organize the properties and management.

1. To keep the accounts and tax simple should I start a property management company as LLC and use it for all my rental activities bills expenses etc.?

2. Also do you recommend to move one of the properties under the same LLC or keep them separate?

3. If keeping the properties separate from property management LL, should I start one or more LLCs and put the properties under them?

Really appreciate your advice and guidance.

Nathan Gesner · Answer

I'm buying a property with 154 storage units and I want the anonymity. I'm in a small town and don't need people bad-mouthing me when I go after a renter for not paying their $50 storage rent. I still have 30 rentals under my personal name.

Every LLC has initial setup cost, annual reports, and annual tax returns. A CPA is going to charge you hundreds for each LLC tax return. And for what? To protect your assets against a lawsuit?

Most Landlords are never sued.

When they are, it's usually over a smaller amount like a dispute over the deposit.

Even if you lose, insurance will cover it.

How many Landlords are sued and lose? Out of those, how many lose so much that the property is taken from them? I challenge you to find even one. Insurance is designed to win; they cover you up to $300,000 but the average judgment is significantly less than that.

You can get $2 million in umbrella insurance for a few hundred per year. It's easier and cheaper than setting up complex systems.

Niobe Burden Austere · Answer

I HIGHLY recommend getting more information about LLCs and other entity options and how they can benefit you for Anonymity and Asset Protection by watching the Clint and Tobias of Anderson Advisors on U-Tube.  I've learned a ton!!   Here is a link to one to get you started....you WILL get hooked as their teachings are phenomenal.

Also Tobias Mathis at the same firm - explanation and funny too....

Good luck...it's important to do it right!

Nam Trang · Answer

I don't think doing this for a tax deduction is worth it.  It is a good business idea and something I have been working toward for some time now.  You are splitting hairs just to save a few bucks off for tax deductions in my opinion.  If you want to really get extra tax deduction on your rental property.  Just remodel one of your rentals.  Save all your remodel expense and write it off.  you could possible increase the value and increase rent as well as a huge write off that year. As for starting a property management company.  Be aware you open yourself up for a totally different legal responsibility with fair housing and other legal responsibilities.

Chad Hale · Answer

@Sailesh Kumar  You could look into using a trust(s) to hold the properties.

As @David M.stated CA charges an annual $800 fee for each LLC.  That will buy a lot of insurance and not have the LLC complexities.

David M. · Answer

@Sailesh Kumar

I;m generally of the mind to hold the properties personally.  Although, your commercial properties tend to carry more liability so a LLC might be warranted.

Don't forget that being in California you get billed $800 annually per LLC by the State.

You could setup a mgt LLC, but the question is why?  What are you looking for?

-If for accounting/tax reasons, I hope not.  The deductions are the same.  Also, any profits of the LLC become active, ordinary income as I recall.  So, no point since it costs you more

-If for liability...  You have a fair amount of rentals.  Consult a qualified professional or two if it really provides any sort of liabiilty protection is you engage your own management company to handle the rentals.  You need to have a legal agreement between yourself and your mgt LLC.  Otherwise, it won't be clear which entity is responsible for what and you'll be co-mingling your funds.

As stated above, you can rely on your insurance and umbrella insurance policies.  You'll have them anyway with a LLC.  You could pay for the additional liabiilty protection of a LLC, but its not always worth it -- especially with CA's $800 annual charge per LLC.  And you also have ot worry about operating the LLC's correctly to maintain the corporate veil.

If you were going to use a legal entity, I would start with the commercial properties.  Don't forget about your financing if/when you do use a LLC.  The mortgage will be in your name but the LLC will hold Title.  In my opinion, the Due on Sale clause is the least of your worries as the "simple" solution is refinance if they call it in.  The real issue is co-mingling funds and your desired limited liability.  The LLC can only "insulate" what is under its name.

I hope this helps. Good luck.

Sailesh Kumar · Answer

I have 30+ rentals and they are all owned under my personal name because I know the risk of loss in a lawsuit is astronomically small.@Nathan G. thanks for the reply but my attorney and CPA both claims that I must put every 2M worth of properties in a separate LLC.  Perhaps they want to charge me more but they claim it’s super important to minimize the cost.  If you think the risk is astronomically small why are you creating the LLCs now?

Nathan Gesner · Answer

There's no need to create complexity in your life.

Unless you are managing for other people, there's no real benefit to setting up a company.

As for the LLC, you'll be fine keeping multiple properties in one LLC. I have 30+ rentals and they are all owned under my personal name because I know the risk of loss in a lawsuit is astronomically small. I'm just now creating my first LLC and will start to put certain properties under it. As you grow, you may consider creating one LLC for every X properties to split them up. Again, it's a level of compexity and additional cost with very little added benefit.

Soh Tanaka · Answer

I really think you should find an attorney or two and talk to them. If you are going to set one up, you might as well do it the right way.

Sailesh Kumar · Answer

The properties are in the Bay Area in CA. They are mostly 4plexes and an 8plex.  The rents are pretty good here.

Should I start my own property management LLC

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