Start a separate property management company?

Question

Hi folks, I don't like how I am not compensated for my time as landlord when I am doing renovations/maintenance on my properties. I guess maybe it just creates a convoluted mess of paper-trail, but if I created my own corp to manage, maintain and renovate my properties could I not then charge for my time? I understand that my management company would then have to pay taxes but they would be corporate, not personal. I just find that between renovations, maintenance and dealing with tenants on a few different properties takes a lot of time, but I can only really claim hard costs as tax write-offs. Creating a company to do this accomplishes that in a sense, but I am wondering if it just passing the buck on to myself only to pay tax on it later so to speak? I hold the properties in my own name, not through a company currently.

Roy Cleeves · Answer

If you do not already have a company then I would recommend that you incorporate and use that company for that and so much more. You can use it for other Real Estate items and write-offs. If you accumulate money in that company then you can use it to buy your next vehicle and thereby saving the taxes that you would have paid personally. There are more bookkeeping and accounting costs yet it seems to be worth it as long as you use it to make purchases, etc. And I also think there is some Capital Gains allowance for each corporation as well so you might even use it to buy Real Estate in the future. I am only providing an opinion here, you are still best to check with your accountant to understand the advantages and disadvantages. Either way - Good Luck!

Account Closed · Answer

@Brett Skauge welcome to BP! Unless you plan on making a business out of property management, you aren't going to gain anything by setting up a corporation to do your own PM unless you are playing a very long game. Payments that you make to the PM company will be subject to corporate tax, and then you will be charged personal tax when you take that money our (dividends or salary) to pay yourself. I suppose you could keep the PM money accruing to a year where you have less income, but you'll also have the hassle of maintaining corporate records, business licensing, insurance, etc. that will cost you thousands each year.

Basit Siddiqi · Answer

@Brett SkaugeIf you pay yourself a salary, the salary would be considered a deduction at the rental level. However, you now have wages to report as income.If there is no wages and the PM company is set up as a C-corp, you now have corporate income tax responsibilities. You also have a concern of the capital being stuck at a corporate entity.If it is an S-corp, you potentially would shift items from rental to S-corp pass-through income.

Brett Skauge · Answer

Thanks, I figured that was the answer but I was hoping I was wrong!

Sunil Garg · Answer

HI.

I agree with Chris Baxter. At the end of the day you are going to pay personal taxes on any money you end up with. And when you write off your time, you are essentially trading profits for salary. Not sure you come out ahead on that one. Probably not with the additional accounting fees.

Start a separate property management company?

Start a separate property management company?

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