Investor · Tobyhanna, PA · Member since 2015 · 61 posts · 46 votes
hello BP!
i realize this topic has been discussed before but i have a little twist on this question.
according to PA law one does not need a re license to manage own properties. what if i create an LLC that will manage properties that i and my holding LLCs own (and ONLY those properties)? in other words, a management company (myself as the owner) managing properties that i own or have majority interest in. would a real estate license be required for the management company? Real Estate Commission was not able to answer this question :) thank you!
As a practical matter, you might be okay. But I'm not sure what exactly the benefits would be. For example, it's unclear whether you would have additional liability protection if you handle you act as your own property manager. This is because Pennsylvania law recognizes something called participation liability/theory. It basically stands for the proposition that if you --- as an LLC member --- personally do something wrong, you can be personally held liable even if you do it on behalf of the LLC.
Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.
Investor · Verona, NJ · Member since 2014 · 1k+ posts · 832 votes
7y
Your properties, you can manage them - a member of an llc can manage any properties they are a part of. The ontly thing is the management co. Would have to have ownership of each llc or parent llc. I do not believe having a management co. Will help you tax wise if that is what you are going after, it will just cost you more money in forming and maintaining the llc.
As a practical matter, you might be okay. But I'm not sure what exactly the benefits would be. For example, it's unclear whether you would have additional liability protection if you handle you act as your own property manager. This is because Pennsylvania law recognizes something called participation liability/theory. It basically stands for the proposition that if you --- as an LLC member --- personally do something wrong, you can be personally held liable even if you do it on behalf of the LLC.
Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.
Investor · Tobyhanna, PA · Member since 2015 · 61 posts · 46 votes
7y
thank you all!
I have family members that im employing (currently as independent contractors, they will be paying self employment taxes themselves at tax filing) and wanted to create a management company to write off emplyer's portion of self employment taxes as a business expense; and with the hopes to do the same when i have to pay myself self employment and/or purchasing health insurance.
@Eric Carr - luckly PA doesn't charge extra fees for LLCs besides the filing fees;
@Chris K. - thank you Chris!!! i wasnt even thinking about additional liabilities
Rental Property Investor · Union City, PA · Member since 2015 · 40 posts · 10 votes
5y
@Tatyana M. I am currently reorganizing our portfolio and we have it set up with one management LLC and the individual properties held in a couple separate HOLDING LLC's.... I am curious what you found out! I have been searching through some old posts but it seems PA is a little different than other states. I am thinking now that it was unnecessary to create 3 LLC's but whats done is done!
Particularly, I am trying to determine if the HOLDING LLC's should be receiving some income from the management LLC's. As we put this together, I was thinking the HOLDING LLC's would not have any cash flow or income and would just Hold the properties while the Management LLC would write the leases, collect the rents, pay all the expenses... etc.
As out number of properties grows, we want to look and act like a business, at the same time, I don't want to go overboard!
Investor · Tobyhanna, PA · Member since 2015 · 61 posts · 46 votes
5y
@Billie Jo this was more about creating a management co to receive "management fees" that would be established as a S-corp for purposes of employing me and some family members that help me with the business so i could write off employer's portion of FICA taxes and have an ability to purchase group health insurance through the business. my properties are set up in regular LLCs that pass income to me personally as S-corps have double taxation. at least it was my understanding of the tax side.
Rental Property Investor · Union City, PA · Member since 2015 · 40 posts · 10 votes
5y
@Tatyana M. Interesting! So is that how you did it?
After I posted this, this is what my CPA suggested and how we filed our 2020 taxes:
We, my husband and I, have a Management LLC that receives a 1099 from us individually. We then claim our self-pay health insurance costs as an expense (this totals a lot when you are a self-payer!) and we claim our business miles and some other expenses against this Management LLC, so the taxable income (which is taxed at the 15.3%) is nominal. Then you get a deduction/credit for 1/2 of these self employment taxes. While we are paying some into social security and Medicare, this allows us to get credit for a deduction which we would not otherwise get. Since I already had the MGMT LLC set up, this works for us. We do not employ or pay health insurance for anyone other than ourselves.
I am curious about the S-Corp and if that worked out for your situation.
And I also agree that as long as you have some ownership in the LLC that owns the property, you do not need a real estate license or have to use a broker to manage the rentals. Thanks for sharing!