Would I need a license to manage a rental for my parents?

Question

My parents are thinking about buying a 4-unit near my house. Am I legally allowed to help them with the management of the property if I'm not a broker?

If being a broker IS required... could we get around that by my putting some money into it and being a partial owner of the property?

Thanks for any help!

Chris Martin · Answer

Bad advice. Apples and Oranges.

In plain English, what you are talking about is disguising a commission as a 'salary'. No one is going to buy that. $20/week is $0.50 an hour full-time. Right. And don't forget the W-9 and W-2 and workman's comp for the salaried employee making $0.50 an hour. The exemption to this rule applies to employees of companies like Highwoods Properties whose employees can sign leases on behalf of the company without regard to license restrictions. They still must follow state landlord laws.

About the only reason Rich needs to even care about this licensure issue, IMO, is in case a deadbeat tenant gets pissed, has above average understanding of the rules/laws (we landlords call them 'professional' tenants), and brings up the 'operating without a license' to a judge... probably during an eviction case.

Wrong. Licensed Property managers operate via an exclusive property management agreement contract as an independent contractor. I put a link to an example... your state will vary, but the concept is the same. The PM is not an owner's employee. And bank employees don't sell property they don't own. If you are alluding to foreclosure sales, these are performed by trustees or by judicial action per the power of sale clause in a mortgage or deed of trust. That would be item (3) in the exemption list for Indiana RE licensure law.

Chris Martin · Answer

From a google search, it looks like family memers are not one of the 12 exemptions in IC 25-34.1-3-2 Transactions without license; prohibition; exemption per Indiana Real Estate Commission Laws and Regulations...

Brian N. · Answer

Chris,
I did not say a bank was acting as a broker. A representative of the bank (employee) hires a broker to sell a property owned by the bank. They negotiate the sale as if the property belonged to them....it does NOT belong to them. It belongs to the bank and they are merely a representative of the bank. They are allowed to do this because they are exempt from licensing. Are you saying that bank employees need to be licensed??? Or they are not exempt?? What is the arguement that you are making? Selling real estate is NOT a non-banking activity...they do it all the time. Banks are NOT selling property owned by others...bank employees are selling property not owned by them. The section of Mass law I am refering to you is Mass General Law CH 112 section 87QQ. Google it and please clarify why you think I am wrong. I think we may be misunderstanding each other.

Chris Martin · Answer

So he'd be paid more than $0.50/hour. That's good. The Illinois minimum wage is $8.25 per hour, although that rate doesn't apply to 3 or less employees. Everyone except you would see this $20/week (or whatever commission) as what it is... commission. Not W-2 wages.

The stakes: Illinois is punitive when it comes to unlicensed real estate activities. See my BP post on Dec 31 '10 for one case, or see http://www.idfpr.com/Forms/DISCPLN/1001_dis.pdf and search for unlicensed practice of real estate to see how they handle it (hint: it was a $25K civil fine referenced.)

I can't find this in Illinois. But, show me. I want to see a link to your state statute that allows a bank employee to sell property owned by others.

All bank employees are subject to federal bank regulation. Engaging in non-bank activities, like real estate brokerage, is regulated. Basically banks must engage brokerage services under contract with a third party for asset management and disposition of bank owned property. Banks selling property owned by others? Not allowed. It's not in the list of permissible nonbanking activities.

Reference: http://www.fdic.gov/regulations/laws/rules/6000-1300.html

Brian N. · Answer

Chris,

The 20 bucks a week state was just making a point that if he is working on a salary he is exempt. Bad choice of numbers on my part though!!

Mass General Laws specifically mention bank employees as exempt. No matter how you look at it a bank employee is a representative of the owner same as a trustee would be. They actively take part in the marketing and sale of property belonging to someone other than themselves.  and they are exempt from licensing.

Yes though a contracted Property Management company is not technically an employee, they still work for the owner and can be fired for things such as non performance. Same as a drywaller working in one of your apartments. We are talking symantics here

Chris Martin · Answer

I should have refreshed this page. Joel is spot on. If it were me (from what I know, with somewhat limited information) I would put the property in an LLC, have myself as 10% (or 5%... or whatever) ownership (that makes me a principal and exempt from RE licensure) and parents @45% each. My role would be as 'property manager' and spelled out explicitly in the LLC operating agreement. On the IRS form 1065 part J I would have a 10% profit, loss, and capital share even though my cash contribution is $0. My service translates to a capital contribution. Annual meetings for the LLC will be held in December (or March if you prefer) in Myrtle Beach.

This is not advice, just entertainment. Seek your own professional guidance when forming an entity or dealing in real estate transactions.

Joel Owens · Answer

Rich you do not have to be licensed to do this.The question though is you need to set it up a certain way so you are exempt.

If not set up correctly is where you can get into trouble with licensing and handling money.

Rich Schmidt · Answer

I just meant that I wouldn't be doing it for free.  What kind of arrangement would you suggest?

(As it stands, it looks like this particular deal isn't going to happen.  But we may end up doing something similar in the future, so I'm still very interested in what would work best.)

Brian N. · Answer

In that Link that you provided on page 6 and 7 it clearly states that

"(9) acts performed by a regular, full-time, salaried employee of a
person in relation to real estate owned or leased by that person
unless the employee is licensed under this article, in which case the
article does apply to him;"

In plain english that means that if your parents put you on a salary, say 20 bucks a week, you are exempt from the licensing requirement.

It is the same exemption which gives bank employees the right to sell property they personally do not own. Or property managers the right to lease apartments that they do not own. It is a common exemption and is in most states list of exemptions.

Chris Martin · Answer

Rich Schmidt you'll need to check your state. In NC, managing for family members is not exempt from licensing. That said, if you have an ownership interest, even 1%, then you are emempt and all is well.

Would I need a license to manage a rental for my parents?

Most Popular Reply