Advantages of starting a mgmt company to manage my own properties

[Kyle Brinks]

I have been doing my taxes this year and I came to this realization, currently I only own investments that I self manage, not a property management business. Right now I own a LLC for holding assets and a separate LLC that I want to turn into a property management company that manages properties I own.

I think there might be some tax advantages to separating the management side as a separate business. So my thinking is my LLC that holds my assets could pay my property management LLC to manage those properties allowing me to deduct management fees from my rental income and allowing me a whole buffet of business deductions for the property management business.

Not even sure if this a brilliant idea or flat out illegal.

[Marc Winter]

We have done both investing and running a management company (and still do both at the same time--currently manage several hundred units).  Here in PA, a legitimate management company must have a real estate broker's license, an office that will pass state inspection (including a walk-through), escrow accounts, and (believe it or not), a land-line telephone used strictly for the management company.

Note that whether you are self-managing your own properties or for other owners, licensed or not, you still must stay on the right side of all HUD fair housing rules and your own state and local municipal regulations. Ignorance of the rules/laws is no excuse.

Another point--check with your insurance broker on how to structure coverage. If someone sues, they will usually sue both the owner and the manager, so owner's policy should mention the management company. Also, the management company managing for other owners, needs E&O insurance.

Remember, Property Management is a business;  if you want to grow another business, great.  Personally, I'd only do it if it offered me much more than just a tax deduction or tax savings.  I can get that in many other legitimate ways that will take much less time, money and hassle.

We found that using a regular Corporation rather than an LLC gave us the best coverage for the dollar, ie; health insurance deductions, payroll, etc--check with your CPA.

Remember that every legal entity you create will require time/money for accounting and tax prep, filing fees, etc.

Best of luck!