How to structure one separate entity for marketing different rentals (held in LLCs)?

Question

Hi, I've searched everywhere for hours can can't seem to find a good answer to this question.

If I have different rental properties, each owned by a different LLC, what's the best way to market and do business with my tenants under one single business name (while still protecting personal assets and the other properties own)? That is, I want to limit liability to the one holding LLC that the tenant lives in (if there's an inside claim) and to the management entity, period. I still want my personal assets and other rental properties to be protected.

I have a different bank account for each property (LLC), but I want one single website and email address for tenants and prospects to interface with. Ideally, I'd sign all my contracts/agreements as the [marketing] business. I also have certain software and overhead that is used for all LLCs, and I need to make sure expenses get tagged correctly to avoid commingling and piercing the LLCs' veils. I manage my own properties.

Considerations: I don't want to simply do the operations side of the business (i.e. management) under my own name, because that would create liability and defeat the purpose of using LLCs to hold the rentals.

One option is to sign all agreements as the member of the LLC that holds each property (so each property would get a different signer name, e.g. "Dani Z for 123 Main St LLC"), but that is confusing to tenants who think they're dealing with my marketing company (e.g. "Danismanagemententity.com"). And there are certain expenses (e.g. website, PM software) that are currently shared among the different LLCs.

How do other people handle this? I was thinking I could have a separate LLC that only deals with operations/management, and that LLC could pay for website, software, and tenant screenings. But then that LLC would show a loss each tax year and probably be suspect by the IRS. I don't want to pay myself to manage because then I'd be paying schedule C taxes on that.

I was also thinking that maybe I could use an assumed business name/DBA for the marketing/operations, but how could I do that while still limiting my liability to that one property and not my personal assets or other properties? If I made a DBA beneath the property holding company's LLC (owned by that LLC), then that DBA would only serve that one property, right? I can't have a DBA for "123 Main Street LLC" that is the same DBA as "456 Main Street LLC".

My biggest consideration is limiting liability, and my second consideration is keeping my bookkeeping and taxes no more complicated than they need to be. (FWIW I already have a good umbrella policy and am not interested in keeping the properties titled in my name.)

Any insight you smart folks can provide would be amazing. Thank you.

Rachel Mazzanti · Answer

I think the next best step is to find a CPA or an Accountant/Consultant specializes in RE accounting.

I spoke to my boss and he said that 1099s won't need it because it is for your own properties.

Drew Sygit · Answer

There's a big difference between creating a PMC LLC to start a business and creating one just to simplify your business.

You can create a single-member PMC LLC and then create PM contracts between the PMC LLC and your property LLC's (assuming they are single-member also). Don't really need to do this, but good idea for legal and tax purposes just in case.

You can then open operating & security deposit bank accounts for the PMC LLC and have tenants pay that account. You can also pay all property expenses out of the operating account as long as you track them against the correpsonding property.

For tax purposes, single-member LLC P&L all flows to your personal return on Schedule E.

Lawrence Potts · Answer

Hey @Dani Zee,

Seems like you might be over complicating this. I'd probably talk to an attorney since liability protection is your number one priority along with staying anonymous when you are signing these rental agreements.

If you're self-managing, you could create a separate LLC for this property management company. As long as you are not managing properties you do not hold title to, this is fine. DBA's are for creating separate businesses that operate under the same LLC. For example: I have a construction company called Good Construction LLC. I have a DBA within this LLC called Good Cleaning. So Good Construction and Good Cleaning both operate separately but if one gets sued, the whole LLC (both businesses) are at risk.

If you hire a good PM, you save yourself some risk as well. Typically you'll see lawsuits being executed against the PM for poor performance. The property (you the owner) are caught in the crossfires and may have expenses to pay for (damage to property, etc.), but as long as your property is clean and safe (no slumlord type properties), the liability is mitigated to lack of performance of management. If you are self-managing, you are at higher risk of liability.

Having so many LLC's can be a bit of a headache though. The filing fees from your CPA will start adding up, and all of the separate EIN's you'd need to manage, separate bank accounts, etc., would start confusing me after a while. Maybe consider separating properties based off of equity/net worth? Depending on what type of insurance policy you hold each LLC in, you could start a new LLC every $750,000 in equity? Not advice, just hypothetical number. Hope that helps! Great question, let us know what you decide on doing!

Dani Zee · Answer

Thanks @Rachel Mazzanti! :)

Rachel Mazzanti · Answer

Hello @Dani Zee

How many properties are you managing? It seems you might be over worrying about a lot of things. I can only comment on things that I've seen first hand when I worked for someone helping investors like yourself.

If you are already managing it, you can create a PM LLC. The PM LLC would be the signer of behalf of the owner (tenants won't know it is you). Do you have a website, a PM software and accounting software that you are using? Are you doing all the accounting work yourself or you have someone doing it for you already? Are you doing taxes yourself? About how many bank accounts do you have?

You won't need to do DBAs.

Dani Zee · Answer

Thanks @Rachel Mazzanti. I've read that if a company shows net losses for more than 2 years in a row, that's an IRS audit red flag. If the PM LLC only has expenses and not profits, I'd be concerned about that. I'm also curious if I had a PM LLC, would I then have to issue 1099s to my holding LLCs for rent collected?

I'm in the process of switching everything up right now (transferring properties to LLCs, switching PM software and accounting software, etc.), but I do self-manage and do my own bookkeeping. I have a CPA who I can also ask about this, but I'm not sure that RE investors are her specialty, and my biggest concern is liability more than bookkeeping. To answer your question, about 6 doors/3 properties (for now) and each property has at least 2 bank accounts each.

Dani Zee · Answer

@Lawrence Potts thank you; this is good stuff to think about. I'm leaning towards creating a separate LLC for each of the properties and another LLC for operations (for all properties). These would be pass-through entities so still all one one tax return with Schedule E's (for real estate holdings) and a Schedule C (for management/operations), as far as I understand.

Annual LLC filing in Oregon is $100 so that would add an extra $300, plus another $300 if I hire a registered agent, per year. So an extra $600/year total, which isn't insignificant, but may still be worth it for liability protection. The tenants already know who I am so anonymity is not possible anymore, which is OK.

Rachel Mazzanti · Answer

You're welcome. You won't need a license to manage your own properties even if you start your own PM. You just can't manage others. If you ever need help with outsourcing your bookkeeping, let me know.

Chris Seveney · Answer

@Dani Zee

If you are doing this for asset protection and you are managing your properties you will need to may need to get licensed to be a Pm and get insurance as well.

I would then talk to an attorney as my personal opinion is this is way overkill especially when you self manage. As if you ask a good attorney they will say the property manager is the person who typically gets sued and if it’s you / then who did what? Oh they said you discriminated - well they will then sue your PM company and you personally since you were involved.

But the chances of getting sued and losing everything is like Bigfoot. Always talked about but never seen, unless you are blatantly discriminating or doing something illegal.

A slip and fall on ice if you have good insurance is not going to cause someone to come take all your real estate again unless you were completely negligent.

How to structure one separate entity for marketing different rentals (held in LLCs)?

How to structure one separate entity for marketing different rentals (held in LLCs)?

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