LLC structure and property management

[Paul J.]

I bought my first rental property over the summer and have been operating it remotely from out of state.

I have a very old friend of mine who, like me, is new to Landlording and Real Estate investing who is acting as my property manager. She lives local to the property I purchased and it was a good fit for both of us.

Being eager to learn about this and do everything correctly, we have each formed an LLC - mine to hold the property, hers to manage the property. We wrote up a property management agreement and she re-leased the existing tenants under her LLC's name.

Now, we think we may have ran into a snag - mainly, that the state requirements for being a Property Manager are worded as such:

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""Property Management" is defined in the Occupational Code to be the leasing or renting, or offering to lease or rent, properties belonging to others, under a property management contract. This activity is performed as a third party, for a fee.

If a company or individual is providing leasing or renting services for a property owner pursuant to a property management contract, a real estate broker's license IS required, from the very first leasing activity. Real estate salespersons can also perform these activities but always under the supervision of an employing broker

If the only activities a company is providing are lawn care, snow removal, physical building maintenance, rent collection, condominium association management (with no leasing or renting involved), a real estate license is NOT required.

If it is the property owner, or a direct employee of the owner, performing the renting or leasing activity for the employer in the employer's name, a real estate license is NOT required. "
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So - it sounds like we may have painted ourselves into a corner by doing things the way we have. My question is this:

If we write an operating agreement for my holding LLC that makes her property management LLC a member or manager (with 0% ownership stake) - does that not now make her an owner of the property? And therefore, as a member/manager of the LLC, relieve her of the requirement to have a brokers license? Either way, it is looking like we will likely need to re-lease our tenants in the holding companies name...

Any thoughts on this potential work-around? The only other thing I can think of is 'hiring' her which would require workmans comp, etcetera... It seems like a lot of hassle and expense for the purpose of managing my one little duplex. Anyone else managing a property under a similar arrangement amd if so, whats your entity/relationship to your PM look like?