Advanages of setting up a separately run management company?

Question

Howdy, I have been in the game for about 10 years now and have mid seven figures of real estate assets.  These are multiple assets of all sorts of things, retail, houses, condos, office.  I have bought where I see value.  I own and manage all these assets myself.

Recently I bought a retail center and that deal has been making me think more about if it would be wise to set up a separate management company for all the properties. With the retail center the leases are all NNN and those leases had management fees baked into the leases. I don't plan to hire an outside group. So I'm wondering how this works in practice.

Another big question on running these properties with a management group would it be maybe possible to make the properties look better to a lender? I have used owner finance and hard money mostly to build my portfolio but need some institutional refi in the future.

I'm also thinking about how this affects taxes, insurance.

Thanks in advance for sharing your opinions!

Drew Sygit · Answer

@Ricky Smith if you continue to expand, how will you hire help w/o a PMC set up?

Scott Mac · Answer

Hi Ricky,

Being in operation for 10 years with mid seven figures of assets and NNN leases,

it would be wise to speak with your tax advisor regarding if the tax set up should be an LLC, an S-Corp  or a C-Corp.

It would also be wise to speak with an asset protection attorney to find out if this is something that might be beneficial to you in that area.

From an operational standpoint you might also want to consider the cost of any extra tax returns that are needed by the entity as well as any extra accounting fees.

Good Luck!

Brandon Weis · Answer

I think it would be beneficial to set up your own management company to manage your assets. It can help keep things straight, and it would look more legitimate to lenders, buyers, investors etc. Anyone that is looking at your assets is always going to need to factor in property management, so you can show that as a real expense (and really make it as high or low as you want).

I work in a vertically integrated real estate and development company, and I cannot imagine how things would run if we did not have an internal property management company that essentially works for the other companies but also stands on its own.

Advanages of setting up a separately run management company?

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