While you may get a 199A deduction, you are paying a high tax rate.If we are talking about REIT's listed on an exchange, there are additional overhead costs as you mentioned - You have to get audited financial statements and also comply with certain SEC laws.

That's easily worth it in my opinion for all the great advice I get and for the added safety that I get someone on my side in case I'm ever audited.

You can also do an audit of your “hotel” to see how it compares to others in your market in terms of design and amenities to fully maximize revenue.

IRS will think you are just pocketing the money and you will get an audit.IRS Audits aren't random. 

The property taxes and mortgage interest for the personal portion would then be reported on Schedule A as normal.Trying to pay yourself rent means that you're also trying to declare that the building is 100% business related, which would be untrue and, in the event of an audit, would likely cause some penalties.Keep doing what you're doing - adding enough to the account to cover the personal portions of your bills, but do not declare this as rental income.

I represent people in front of the IRS in audits.

@Kelly ByrdSounds like you may have already set up your LLC so maybe this is too late, but in case you haven't or for any other readers, there are brand new partnership audit regulations which drastically change the course of audits of partnerships (including LLCs if treated as partnerships). 

The amount of the tax is not that burdensome but if you get audited, did not collect and remit the tax, then you will likely have the Dept of Revenue digging through your records for any other violation.

@Joe Fairless, I was in commercial real estate with a big bank, also did some asset management and internal audit...

Tim Bratz needs to be more honorable and file a Reg D 506 C to be able to pitch publicly and truly qualify the investors as accredited before he gets audited and suspended or jailed by the SEC.