Setting Up Family Partnership / Property Management Company

[Doug Maye]

Hello Everyone,

I've spent hours and hours researching this topic and haven't come up with a clear answer. 

Myself, my brother, and my father are starting to invest in real estate and we need to come up with a way to organize ourselves into a formal entity.  Currently our plan is to:

1. Purchase properties in our individual names and get conventional financing, i.e. My father buys the first house and is the sole name on the title and takes out a mortgage in his name.  Depending on the deal my brother and I will pay for 1/3 of the down payment each.  Even though on paper the house is only in one of our names, it is understood that everything is going to be an even 1/3 split from purchase price, to expenses and profit.  I realize that this isn't the safest way to do things, but we are just going to have to trust each other at first.

2.What I would like to do is set up a 3-person entity that will deal with all of the management duties for our rentals.  We plan to manage only our own properties with this entity.  The entity will not hold the property in it's name, it will only serve as the management company.  What I'm thinking is we get the lease in the company name, have rent paid to the company, and then pay the mortgage and all expenses from the company.  Whatever is left over at the end of the the year will just be distributed equally between the 3 partners.  

My questions:

1. Is an LLC the best way to do this in Pennsylvania? I

2. If there is profit at the end of the year, can we just pay the profit into the mortgages and avoid paying any taxes?

3. I've read that an LLC can not be represented by an agent in PA court, so we would need an attorney to file evictions, etc?

4. None of us are brokers and don't plan to become brokers, would it be an issue for us to simply manage our own, and only our own, properties through the LLC?

5. Are there any glaring issues I'm completely missing?

I understand that all of this may be overkill at first, but I want to do things correctly from the start because we plan to be in this for the long haul.  We are closing on our first deal next month and hope to acquire a couple more units in 2017.

Thank you in advance for your help.

Doug