Property owner or property manager?

Question

Hello BP landlords,

I am in the process of closing on a SFH as my first rental property. I have been listening to both "The Book on Managing Rental Properties" and "Landlording on Autopilot". Both books recommend to introduce your self as the property manager vs property owner to potential, qualified and selected tenants and not to let them know that you are the owner. In addition I am planning to set this up as a business and have systems in place for all aspects of managing tenants and a property for it to be scalable for myself. I will be repeating this with a new property every year so it wont be a one time event. All of this brings me to the following questions:

• - Am I an independent property manager or should I setup an entity as a property management company?
• - Texas requires to be a broker or have a real estate license in order to setup a property management entity like and LLC. But does that hold if you are only managing your own properties? 
• - What are the tax pro's and con's?
• - What are your thoughts and current practice for your own rental properties?
• - Recommendation for a good real estate CPA who has expertise in this matter?
•

Any comment or feedback would be greatly appreciated.

Thank you in advance for your time!

Joe Splitrock · Answer

@Houman Omidifar those are both great books and I don't see an issue with introducing yourself as the property manager. You are the property manager, so it is a true statement. The only caution I will give you is do not lie to people when they ask if you own the property. If you expect honesty with your tenant, always be honest with them in return.

There is really no benefit to setting up a property manager company to manage your own properties. You don't need licensing to manage your own properties. There is no tax advantage and there is no liability protection advantage. If you are managing your own properties, you can be held liable for any mis-management mistakes. You can't hide behind a property management LLC and keep your property isolated. The disadvantage of setting up entities is the the extra paperwork it generates with filing at the state level and filing taxes. Why go to all the trouble for no benefit unless you plan to manage other peoples properties, it is really not necessary.

Jim K. · Answer

I would add that a lot of this depends on the self-managed property class and location. I own low-C'class SFRs with working class tenants. In the county that I live in, properties can be looked up online easily and their owners are listed. It would be virtually impossible to hide from my tenants that I am the owner unless I dealt with them personally under some kind of assumed name or put all the properties in an LLC.

But I introduce myself as the OWNER, my lease identifies me as the LANDLORD, and I conduct myself as if the buck stops with me. You simply have to deal belly-to-belly with your tenants in this property class if you don't want to make your life hell. I grew up in an SFR almost exactly like the homes I own today. I know somethong about these people and the challenges they face.

Drew Sygit · Answer

NOTHING GOOD COMES FROM TENANTS KNOWING YOU ARE THE OWNER!

If you think telling tenants the "buck stops with you" makes a real difference to them, you really haven't thought it through.

We manage in Class C areas and every time we tell a tenant something they don't agree with or deny something they want, they ask to speak to the owner. We politely tell them the owner hired us to handle the home, but if they really want to communicate with the owner, they can submit their request in writing and we will forward it to the owner. Most never submit anything. If they do, we submit it to the owner with the history of the issue and our recommendation, which they follow 99% of the time.

The ability to force tenants to put things in writing and then have time to sit back and contemplate the best way to respond, without being emotional about it, is priceless!

We always recommend setting up an LLC, making an attorney or CPA the registered agent so your name and personal address are not associated with the LLC (keep your name, initials, etc out of the LLC name!) and then transferring the property ownership to the LLC. If a single member LLC, there are no tax consequences of the transfer. If you have a residential mortgage on the propety, the transfer is technically a violation of the mortgage "due on sale" clause, but lenders rarely enforce it.

If the LLC is the owner of the property, you can look anyone in the eye and honestly state you are NOT the owner, only the manager.

Houman Omidifar · Answer

Thank you @Joe Splitrock,

That’s what I needed to hear.

Property owner or property manager?

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