LLC and Property Management

8 Replies

Do you need to get a LLC if you have a property manager looking over your rentals?

I was told that you did not need to create an LLC if you had a property management company taking care of your rentals. Can anyone help me out with this one?

@Rey S. You do not need an LLC if you have a PM managing your rentals - the two are not related. I own 3 SFH's and I self-manage one and hire a PM to manage the two other ones and none of these homes are in an LLC.


@Rey S.

While using a property management will limit some of your exposure for inside liability purpose, you will surely be named as a party of any lawsuit anyway.

But using a property manager does not limit in any way the risk of losing your property in any outside liability attack (if you are sued for any of your actions that are unrelated to your property).

So yes an LLC will help in that case to limit your risk. Own nothin but control everything.

I think I might have confused people on my question.

So if had 2 rental units and they were being managed by a property manager, would that property management protect me from being sued.

Would it protected more if I had a property management company PLUS a LLC, or just one of those by themselves.

So what I am trying to figure out, what protects me more having a property manager without an LLC or having an LLC and a property manager.

I hope this makes sense.

Rey

Originally posted by @Rey S. :

Same answer as above.

A property management will not protect you from outside liability, and you may be protected from some but not all the inside liability.

You will still be sued anyway as the owner.

@Rey S. The LLC or seperate entity can be set up for one or two reasons. One is an accounting reason which is a discussion you have with your CPA when it comes to write offs and pass thrus of taxable scenarios. The other is what the others are talking about here and that is to limit your personal liability. If someone was going to file a lawsuit against you today they would name your PM, your name personally, and anyone else they can. If you had an LLC they would probably still name you personally but you can most likely remove yourself personally from the case leaving your LLC to defend it. Moving your properties into the LLC adds some layers and costs to your real estate operation so keep that in mind. Sometimes this discussion goes simply towards the direction of bumping up your insurance coverage or adding an umbrella policy as an extra layer of coverage.

***I will DM you a link to our website where we recently interviewed an attorney on this exact coversation.  


Having a property manager in place will limit the day to day activities you complete as the owner therefor reducing direct mistakes that you can make being directly involved.  Most PMs will have you add them as an additional insured to their insurance policy for the general issues that arrise that are no direct fault but all PMs should have their own Workers Comp, Liability, and Errors and Ommissions to take the hit when they do make a mistake so they can protect you or shield some of that risk.