Should I use a business name for managing my personal property?

Question

Hello, Bigger Pockets community! Should I set up a DBA as a sole proprietor and open a separate business bank account for paying my mortgage and all property-related expenses?

I am in-contract for a multi-unit property in the state of Vermont and I am receiving residential financing. In order to run a professional operation, I would love to send all of my tenants documents as "Rental Property Business Name" rather than with my name. This is partly aesthetic but it also seems practical since I want to operate my real estate business as a professional.

Lastly, the bank has of course given me a residential property loan so even if I were to set up the DBA, my mortgage will be paid using through a personal account. It all seems like a lot to go through just to be able to write "Rental Property Business Name" at the top of documents for tenants... and I would love to hear from experienced real estate investors whether there is an easier way. Like should I just write "[Property Address] Management" on all documents in order to keep things simple with this single property that I'll own?

Michael Dumont II · Answer

I personally have two LLC's. One for management and the other for my properties. The way my attorney explained it to me is that this allows for me deflect liabilities between properties issues and management neglect for self management. Either way he recommended just having a good umbrella policy. As for income it really has no barring other than some fees like filing an LLC, and time. My accountant explained any net moneys coming through an LLC is "passthrough" and is seen as personal income come tax time. My advise is would be to talk to an attorney briefly and accountant to formulate the best structure for your situation.

Tom S. · Answer

@Lionel Church  I simply just set up separate business checking account at a local VT bank and have the tenants deposit into that, and pay all expenses from that account (that bank also holds the mortgage).  Keeps it pretty simple.  You can use a business name for your leases just as long as that name is associated with the checking account.

Hope that helps,

- Tom

Simon W. · Answer

Ok. The topic is not self renting to self business. You are completely throwing a different scenario into the conversation and causing confusions.

Mark H. Porter · Answer

Lionel, I live up in Burlington and through 53 apartments never had a separate business.  It makes little sense nowadays as it will all til back to your social security number and you’ll just be reporting a schedule E in the same return if you rent the place in killington at all.   just get an umbrella insurance policy if you want extra coverage.

Why even bother having a separate bank account? Just use solid accounting practices, or third grade math, to keep business income/expenses from you r personal stuff.

David M. · Answer

@Simon W.

LIke I said, I don't know.  Just something I'd talk to qualified professional about should I ever get close to renting a property of mine to my own business.

Simon W. · Answer

You are talking about self-rental. It means having a property and renting it to your other business. This is not the case for the OP. He is a landlord with tenants.

What I suggested is creating a Management LLC to managed the properties/tenants. What does this have to do with self-rental and IRC-469?

David M. · Answer

@Simon W.

Its a special situation of IRC469 I believe.  is it sub para 7 that brings in the exception.  Sure, the "big players" do this, but they have more resources to maneuver.  Anyway, its been brought many times before. A simple search will bring up something like this:

https://www.elliottdavis.com/r...

Like we always say, consult a qualified professional.

Simon W. · Answer

How does the rental income become active?

The management llc will be accepting management fees less all the expenses that requires to maintain the llc. Second, the rent money is still going to his own personal bank account.

His concern wasn't about deductions.

"If you have an entity do the “management,” and you own both the properties and the entity, then you are basically screwing yourself."

Do you know how many investors and big players do this? I am not sure where you are getting this info from.

David M. · Answer

@Lionel Church

In some ways your logic seems backwards.  Usually a dba is cheaper to obtain and maintain (in NJ it’s zero annual fees as I recall) than a LLC.

Using a legal doesn’t change your deductions or anything.  There generally isn’t any tax benefits.

It doesn’t look like you are seeking the limited liability protection of the LLC and under stand co-mjngling.

Lastly, check with your accountant.  There is an irs rule about self-manage.  If you have an entity do the “management,” and you own both the properties and the entity, then you are basically screwing yourself.  The rental income becomes active, earned income while your deductions stay as passive.  So, you have passive deductions with no income to apply to, and you have active, earned income taxed at your marginal rate and self employment with no active deductions to offset.  Check with a qualified pro for the details as I’m notnentirely familiar.

Like I said, unless your area it’s easier and cheaper to file for a new LLC instead of just a simple dba, just go with the dba.

Lionel Church · Answer

@Simon W. that's a very interesting idea. I do already own an LLC and I could easily set up another one for my real estate investing business. You're saying my LLC could be my rental property management company. That's attractive to me because I could even then pay the LLC the same rates as I would be paying to another property management company and it would make it very clear what my expenses are on the property (with property management included). I like the idea and I'm going to look into it.

Should I use a business name for managing my personal property?

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