Can my LLC act as a management company for my own properties?

Question

I have just graduated college and am wanting to get into real estate. I purchased a duplex that I will be closing on at the end of this month and will be renting out one side while living in the other. As it stands right now, the duplex will be in my name. I recently set up an LLC to manage and eventually take ownership of the property as soon as possible but I am assuming my lender will not allow that without refinancing with a higher down payment/interest rate. My question is this. If I am the sole member of a disregarded LLC, can I rent out the property, accept rent payments, and pay the mortgage in the name of the LLC without getting a brokerage licenses? In this scenario both myself and the other tenant would be paying rent to the LLC and I would report any income after all monthly payments on my own personal income tax.

I know that there have been similar questions posted but most were a few years old and had a lot of different opinions on what was legal/best practice. Thanks for any advise in advance!

Caroline Gerardo · Answer

If you collect income in a LLC you have to file LLC returns then the income flows to your personal return on a K-1. You cannot change the title to the LLC. You may be able to get a bank account in the LLC name but if you receive a check written to the LLC you can't put it in your personal checking. Many people on here pay for an LLC thinking it is the protective bubble. It can only protect you if you are honest, a landlord who keeps health and safety codes up, you have great insurance, you never mix the money, and you are lucky. You can pay the mortgage with an auto payment from the LLC bank account BUT HOWEVER the 1098 will come in your personal name, and the property taxes in your name. Red flag to IRS if you try to deduct the taxes and insurance on the LLC tax return. I am not your CPA or attorney, this is not legal or tax advice.

Natalie Kolodij · Answer

A property management company pays 15.3% self employment tax on income.

A rental pays no self employment tax. If your rental earned $5,000 net income = You pay income tax on $5,000

If you now pay yourself/your management company $5,000 = Your rentals pay no income tax. Your property mnaagemetn pays income tax on $5,000 + 15.3% SE tax on $5,000.

Ashish Acharya · Answer

@David Shelby @Caroline Gerardo

The LLC is SMLLC so there wouldn't be any returns or K-1s.

Getting Brokerage licenses has nothing to do with your LLC activities you mentioned.

You don't want to collect the rent from yourself and report it again. You are double taxing your same income.

Caroline Gerardo · Answer

Ashish Acharya to be a property manager you need a broker's license depending on the state. Some states AK DE FL GA HI IL NV VI DC you also need property manager license which is 24 hour class, pass, and pay annually. Property manager's business income is different from personal. He wants to act as property manager to not appear to be the owner to tenants, you knew this when you answered. To achieve the "secret status" it's not easy- all accounting has to be separate silos.

Your lender may or may not allow you to sell the property (quitclaim) to your single owner LLC but you have to reveal who the owner is, that conflicts with the secret status plan. Insurance has to match vesting, in many states insurance is a mess.David mentions that he owner occupies 1/2 with another tenant and wants both himself and other tenant to pay the LLC. @David Shelby making this complicated in the name of secret status achieves zero. The title was closed in your name, the other tenant is going to know. Keep it simple and get an umbrella policy for extra coverage.

LLC property manager can't file in court the same as you as person, your liability coverage cost increases, any code violations are treated differently, your bank account cannot be not mingled...

Whitney Doyle · Answer

@David Shelby - I had a similar question a few months ago and thought that I needed to get a broker’s license. I recently listened to a podcast on The Landlord Diaries, episode FF86, where they talk about “co-hosting” as a term used to get around this exact thing. It seems as though several people are getting into the business of doing property management activities but calling it “co-hosting services” instead of property management in order to not need a Broker’s license. I’m not sure of the legitimacy or legality of all of this, but it has me looking more closely at this type of business to see if that may be how I need to word my LLC’s services provided for my properties and then potentially grow to provide similar services for others’ properties.

Drew Sygit · Answer

@Ashish Acharya, @Basit Siddiqi, @Natalie Kolodij

Thought that a single member LLC doesn't require a separate return and everything flows through to the 1040 Schedule E?

@David Shelby check with your lender/servicer because you can often Quit Claim the property deed from yourself to a single-member LLC without vilating the mortgage due on sale clause.

Karen Fuentes · Answer

Hi @David Shelby, I’m in a very similar situation. I’m curious to know if you were able to do this successfully if you don’t mind me asking?

Thank You

Joe Norman · Answer

Sounds overly complicated with little-to-no benefit. Why not do all this in your personal name and just get an umbrella liability policy (which you should have anyway)?

John Mocker · Answer

David,

If you are thinking of getting insurance for the Property Management activities under the LLC, they consider the percentage of management of properties you own.  I don't know if it will impact the coverage now but it will certainly be a factor when you change to LLC ownership.

If you do not insure the LLC for Property Management, there are a lot of situations where you will be uncovered.  Some claim scenarios as a landlord:

- claims of wrongful eviction, discrimination in renting, etc.

- failure to adequately remove snow or other debris

- other safety related repairs not done

Discuss the professional coverage with your agent to see what the cost would be.

Basit Siddiqi · Answer

@David ShelbyMost states require you to get your license if you manage a property for someone else. You can normally manage your own property without a license. The question is can you act as a property manager for a property that your LLC owns?Regarding the income aspect - Something to consider talking with your CPA about. Having a property management business may be good if you want to have ordinary income which will allow you to deduct health insurance / retirement plan contributions.

Can my LLC act as a management company for my own properties?

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