What is best structure for buying and managing property for parents?

Question

I would like to buy 1-3 rental properties for my parents, with their funds.  As their money will ultimately come to me, this is sort of like managing my own money.

However, my parents are fairly disorganized. While i am confident I can get them to close a transaction, i'm less confident on their ability to pay day-to-day expenseas as I request them.

So I am wondering what the best way to manage the property will be.  I am thinking of possibly, having everything go through me.  Tenants will pay their rent to me.  I will pay expenses.  I will remit to them profits, and they will remit to me expenses.

But I'm now shore of the aforegoing will work for them (or me) for tax purposes.  I don't see why it wouldn't work, but I'm not sure.

The alternative is for them to add me to their credit cards, and for them to open up a bank account jointly with me.  That way, everything paid comes out of that bank account.. and all profits are on that bank account.   they include me on the account so its easy to make deposits, withdrawals, and pay credit cards.   But I'm not sure how this complicates things as well.

Any suggestions?

Bill Gulley · Answer

So, it's your money.....LOL, if my kids had your attitude they'd be cut off! Obviously they have not been so disorganized that they couldn't acquire the money you're foaming at the bit over.

Put the property in thier name, have them do some estate planning, for a few rentals you don't "need" an LLC but get the properties and themselves well insured, liability coverage in these matters is cheap.

Ahhh, the next generation.....   :)

Arjun K. · Answer

Thank you, everyone, for your thoughts/advice.

Bill Gulley · Answer

Hey John, wasn't directed at you.....  :)

John Mireles · Answer

@Bill G. Whoa! Hold the judgment a bit. I take damn good care of my parents. I personally don't feel that an LLC is worth the expense but that doesn't mean I'm foaming at the bit or disorganized. It's a simple business decision based upon my parents' net worth. For them, having ample insurance is fine.

Prashant P. · Answer

It is best to put the rentals in an LLC to protect your assets or your parents.

If you manage the promptly and charge your parents a management fee, they can use the fee as a expense on their tax returns.

John Mireles · Answer

For taxes, they get the tax form from the bank for the mortgage interest info. We supply the tax preparer with whatever expense info they need and that's pretty much it. Probably just print out the Quickbooks information and send it over. (I don't actually handle the details - that's my bookkeeper's job.)

You can do an LLC if you choose. Here in CA, that's an extra $800 per year that I don't feel like spending. If it's cheap, no reason not to. Keep everything simple and transparent is my suggestion.

Arjun K. · Answer

Thank you John.  Separate bank accounts makes 100% sense.  How do they handle their taxes?  Are simply running taxes with a profit-loss statement?  How are they itemizing expenses for depreciation, expenses, etc.?

I was thinking of setting up an LLC for my parents.  That way they get the added benefit of an LLC (I don't use an LLC, I have a large umbrella).  And then rent checks can me made to LLC, credit card can be made in LLC.  ANd that way parents will have everything in their name still.

What do you think?

John Mireles · Answer

I found, purchased - with my parent's money and in their name - and now manage a property for my parent's. The property is purely in their name, but I take care of everything for them. As far as the tenants know, I'm the owner. My name is even on the insurance along with my parents.

I have a separate bank account in my name set up just for their property. I use it for nothing else but cashing their rent checks and paying for the mortgage and various expenses. I keep a some extra money in the account for unexpected expenses and security deposits. I charge a monthly fee for handling everything. My parents then receive a profit and loss report/cash flow statement along with a profit check on a quarterly basis.

Having a separate bank account has made it easier to keep track of things (despite having a bookkeeper, managing the books hasn't always been as easy as I would have expected). Also, my parents know very little about real estate investing so I've been able to keep the sharks at bay. (The mortgage broker tried to swindle them out of $7,000 but I caught the little rat bastard red handed.) Hope that helps.

What is best structure for buying and managing property for parents?

Most Popular Reply