"Rental Property" LLC held in "Property Management" S-Corp

[Robert Shedden]

I am asking the basic question of "LLC or S-Corp for Rental Property?" but with a twist....

I am working to acquire my first rental property in Rockford, IL and was planning to set up an LLC to hold the properties... A colleague of mine suggested setting up an S-Corp for a property management corporation. Then, hold multiple rental property LLCs within the S-Corp. (Please bear with me, as I'm just diving in to the legal and tax strategies related to REI...) But, I believe the plan was to have the LLCs pay the S-Corp for services. Also, all the profit from each LLC would flow to the S-Corp. Finally, I could receive shareholder distributions from the S-Corp, thus severely limiting my tax liability from the rental property income.

Is there any validity to this? Any legal implications? I know I would need to look at the tax savings versus the additional fees for multiple entities...Please post thoughts or questions for a great discussion!

-Rob Shedden