If I create a separate LLC to manage my properties, who is labial if I get sued? This management LLC would not own the property. It would be the entity on the lease with the tenant. It would have its own bank account to collect rents and pay for repairs. There would be some sort of contract between the management LLC and the entity that owns the property, stating the responsibilities of the management LLC and how much it pays the owner of the property to "lease" the property.
Would this provide liability protection for the entity that owns the property? Or is it the owner that bears responsibility if anything goes wrong? Thank you in advance for any advice.
Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes
5y
@Christopher Helwig, I don't have the definitive answer on this, but I look at it this way.
The management LLC has no assets, so even if they get sued, there is nothing for them to go after. So, I would presume anyone would sue the LLC that actually owns the property and the asset(s) of value.
Rental Property Investor · DFW, TX · Member since 2013 · 953 posts · 910 votes
5y
In the general sense of asset protection law/theory yes this is what you should do. The management company would carry the liability and since it has no assets, there isnt anything to gain from a lawsuit. As long as you have a lawyer draft it up and follow the rules so as not to allow the veil to be pierced it should work in theory. In the real world they may try suing the PM company, the manager personally (you) and the owner or entity that owns the property. Whether you should do it is up to you. How many properties are you managing? How much are you willing to spend in legal and accounting fees to maintain the LLC? Its really up to you but I wouldn't bother with it until you have 5-10 properties. But thats me, ask any lawyer and theyll tell you that you need it now and that they will give you special price...