Creating a Property Management Co.

[Shaun R.]

I have approx 10 rental units that I and my partners manage ourselves. I have read and seen Asset Protection & Estate Planning attorneys discussing how to create a Property Management company to help run and shield your investment properties. Some of the information that I have seen recommends creating a separate C-Corp Property Management company which then executes a Master Lease agreement with the underlying properties held by LLCs. I do not fully understand this strategy. What are the advantages of this structure? Why create a C-Corp as opposed to a LLC for the Property Management Co.? Any help or advice would be greatly appreciated.

[Luciano A.]

@Shaun R.

Congrats on having 10 rentals and self-managing. One piece of advice I would give my younger self if I could be KISS....Keep It Simple Silly. I remember when I was starting out I read all the Rich Dad books, other books that talked about Living Trust, Land Trust, etc. I over complicated my taxes with a dozen LLCs, 4-5 Living Trusts, a land trust, a Delaware and Nevada Corp, etc.

I wanted to protect myself and my assets. But keep it simple.

Create an LLC so that you have a different entity that manages the properties versus the same LLC that owns them. Helps to keep your accounting separate and looks more professional as well as allows you to say you are just the property manager not the owner of the property.

Then I would get great insurance for the properties with an umbrella policy. 

That should be enough. The only time you need to do all these other things is if you have high net worth or own the properties free and clear. Otherwise, you have a third partner that will insure you don't lose your property..... the bank that holds the mortgage will not just allow someone to come in and sue you and take the property. They have an interest in the property thus they will defend it to defend their stake.

Best of luck