Property Management LLC
I own and manage a single-family home and a 4 plex in Metro Detroit. I own the 4 plex 50/50 with my parents and it's starting to become tedious trying to track who's putting what into the property as far as expenses and sweat equity is concerned. My parents live on the other side of the country and we've agreed that I will manage the property on behalf of all of us and I will be the public face for the tenants. My parents put up most of the money for the down payment and they're crediting 10% of the rents as equity to me each month as payment for managing the property until we reach an equal equity position.
I have an LLC I created 2 years ago that's been sitting around doing nothing. I was thinking of having a lawyer draw up new articles for it and using it as a property management LLC to manage the 4 plex, my single family, and future homes. Since I would still be self-managing my own rentals and not managing anyone else's I don't believe I would need a real estate broker license. Seems to me it would provide a more consistent face to the tenants and would streamline income and expenses tracking and payments.
Is this a reasonable thing to do/ good idea?
I don't think a brokers license is required here in Kansas, where I live in order to manage properties. Is it required in your state?
Additionally, the goal of providing a consistent face to your tenants and stream lining your expenses is not affected by the entity that you use. I'm not sure how an LLC will accomplish what you want? You can still pick a business name out of thin air and tell your tenants this is the name of the company that manages the properties. That would be a sole proprietorship and I think there is a way to do s sole proprietorship with more than one person.
You can then open a checking account as a DBA of the company name you came up with and track expenses in and out of it.
My point is not to say an LLC is a bad move. it's probably a good move, but I am saying that the LLC doesn't make any difference for the problems you are trying to solve. The LLC protects your personal assets from liability of your business.
@Jason Schwerin I would definitely set up this company and have all your properties managed thru it.
Good point Jacob. A DBA would be a cheaper option. I guess I should just talk to a lawyer and see what makes the most sense.
The LLC would provide some liability protection, and general business liability insurance would probably cover you as the manager. The primary reason to consider it is to make your business look legitimate, and open to bringing on a partner in the future.
@Jason Schwerin That's exactly how I started my PM company. I created MOXIE Management, LLC to be the company that managed all my properties, this way i could hide the fact that I was the owner. Although many have figured it out...
I then grew it once I had the Realtors license and could manage other properties as this is required in my state. Well technically a Broker's license like you mentioned, however I found a broker that allows me to run with no interference.
I think it does help stream line the finances because now MOXIE holds the SDs, not me. MOXIE collects the rent and distributes the owner's payments, not me. It allowed us to create a great system at the start so when we add properties to our personal or management portfolio all the rental stuff goes through MOXIE's systems and is a clean turnover.
I would VERY HIGHLY RECOMMEND to NEVER own anything in your management company LLC. As it is the most exposed of the businesses, it's the first to be blamed and called out in a lawsuit. We own very little assets in the companies' name for that reason. We'd be a very small target for a lawyer. If we do then we give them the little cash that's in the account and that's all they get really.
-Dave
Thanks, Dave that's great. Do you consult an attorney or accountant, or have you been doing it all yourself?
Originally posted by @Jason Schwerin:Thanks, Dave that's great. Do you consult an attorney or accountant, or have you been doing it all yourself?
Well better late than never on the response! Haha I am very much in touch with my lawyer often. He reviews all my documents, leases and letters. Truthfully I think I'd like to run everything by a tax lawyer to make sure I'm taking advantage of everything I can, but haven't yet.