My understanding is that there may be some benefit to creating a property management company to manage one's own properties. I also understand that it is not necessary to have a real estate license to manage your own properties with a management company. Please correct or clarify if I am mistaken.

What benefits are there to doing this making a property management LLC for yourself?

Another question is that does having this setup make some portion of otherwise passive income into the dreaded "earned" income? Does the management company need to pay its employee (yourself) a "reasonable" income? Or can you pass it all on through so that the management company works for free?

First, this will be state law specific. In general, the rule I have heard from other investors on this site and the laws in Missouri say that I can manage any property I have an interest in. So if I own the property, or own the company that manages the property, then I have ownership interest and do not require a real estate Broker's license. I could also have interest if I had an Option contract to purchase a property and a lease agreement that allowed me to sub-lease it, or even a 1% actual ownership interest. As you can see, "interest" is a broad term and comes with many creative avenues to make yourself legit without holding a Broker's license.

The second key thing: why do you want to form a management company to manage your own properties? There won't be any tax savings vs. DIY or having an LLC that owns the properties that you're a member of. As a member of my LLC, I have my business card that says, "ABC Rentals, S i d, Leasing & Acquisition Specialist." Easy cheesy.

Some folks think that by forming two LLCs, one to own the properties, and a second one that manages the properties, gives them more protection from law suits. That may be true or not. Too much hassle in my view. A single LLC with a beefy liability insurance policy covers me.

Sid, if you don't have a leasing LLC is your "ABC Rentals" the name of the LLC your property is in? Or just a DBA you have registered?

I guess my goal would be so tenants aren't paying me personally. I only have 2 properties both in my name with liability insurance as protection.

I don't know that I would want to put every property (2 isn't a huge deal but hope to acquire more) in its own LLC and use its own bank account, etc...

It sounds simpler from a paperwork aspect to (potentially) put properties in own trust to hide name from asset ownership, use proper liability insurance for protection and some sort of business name to collect/manage the properties to keep name in day-to-day private.

I guess really my goal in asking about this would be to keep my name as owner private, with as little paperwork and as few bank accounts as possible.

Kurt, yes I have a fully legit LLC registered with the Secretary of State for Missouri, and no it isn't named ABC Rentals. Like you said, the name of the game is to keep things private.

Btw, S i d isn't my legal name either. ;-)

I see privacy is a goal. Why do you want privacy? Avoid lawsuits? If yes, there are better, less-complex, less costly ways than layering LLCs and/or creating trusts. Liability insurance is your friend. Know your state LL/Tenant laws, Fair House, and ADA. Keep your properties in good repair and follow city codes and ordinances. Act in a prudent businesslike manner. These steps cover all but the nuttiest of scenarios.

More than likely, when they sue, they'll name you, as owner, and you, as manager in the suit. They can sue two companies as easily as one. You don't have any assets to protect in your management LLC so why bother?

I wonder if they sue two companies, and win, would that be a larger settlement than just suing one? Also, the further you separate and shield yourself, the greater the chances of your liability insurance not covering you.

In my opinion, owning a reputably run, properly managed LLC that owns your properly maintained property and a giant liability policy, is the second greatest defense against losing everything in a lawsuit.

Thanks Sid, Yes I realized "abc rental" was a placeholder name.

So do you put each property in its own LLC, with its own bank account? My understanding if they are in 1 LLC or even in separate LLCs but use the same bank account (funds co-mingled) then they are all cross-exposed.

If you buy a business vehicle does it have to be bought by every LLC? Otherwise if "ABC rental" buys car and visits "DEF rental" that isn't a business expense is it? It seems with multiple properties to have 1 management business would be the simplest --- but perhaps I'm over thinking it.

I purchased a large apartment complex and was introduced to the tenant by the previous landlord as being her new property manager and handyman. Any complaints or tenancy issues should be referred to me, since the owner was old and now retired from management issues.

My first tenant wanted a new dishwasher. I tested the old one and it worked fine, I cleaned out the water intake filter and painted the front panel with new paint. Saved $500 from providing a new one. I said, "The owners will never approve a new dishwasher when the old one is still working".

Another tenant said, the air conditioning doesn't cool anymore. I tested the ambient temperature and the units output and the difference was within the proper range. I told the tenant it's working just fine and just replaced the filter... Saved $1,000.

Robert, so you found being the "manager" is useful. The internet age has made it fairly easy for anyone to find out anything. To me it seems like trusts accomplish that since they are not in the public domain. Even as you say looking up LLC names you can see the owners which may be a person, LLC or trust.

How do you suggest to try to hide your name?

Thanks for your input!

Kurt....nope just 1 LLC.

My financial mentor Dave Ramsey advises that you should start going beyond 1 LLC once you get up to $3-$4 million set in one. I haven't had that problem just yet. Working on it.

I carry around $2 million in liability coverage. Per my college law prof, the percentage of lawsuits against individuals/small businesses such as myself that go over $50,000 in defense AND settlement/awards is less than 1%. Most times the big suits are against large companies, and there is "pain and suffering" awarded as well as punitive (punishment) damages because of criminal negligence. The classic case is McDonald's hot coffee. 1 in 1,000,000 get that bad. The rest are settled outside of court for far less.

Sid,

That was my general understand that proper insurance (as well as business conduct) covers the majority of one's risk.

So really a LLC itself is most likely unnecessary all together then? 99% of lawsuits less than $50,000?

It seems that having 1 LLC would you give the ability to distance yourself enough from the perspective of most tenants. And having that 1 LLC control everything would solve the aforementioned business expense item that is used among multiple properties. Also would limit the paperwork 1 annual filling, 1 bank account.

Yes, I agree with the LLC owner names being found as quite easy. It is public information. Michigan has a website you can scroll through seeing all LLCs and their owners. Of course the owner can also be a trust.

But that is why I was interested in having the properties in trusts. Of course if one is being deposed the beneficiaries can be named but it isn't available for public lookup by anyone since the documents are private. Trust gives better privacy and liability insurance is quite capable for asset protection.

The name of the LLC really doesn't matter - they will find you if you are negligent in some way.

I have a Delaware Series LLC for my 10 properties. 1 LLC with 10 separate cells that (to this date) have not been challenged/pierced legally. I pay one corporate fee to Delaware and a foreign corporation fee to Massachusetts but still much less expensive than separate LLC's for each property. Each property has it's own series name (LALA LLC, Main Street Series) and all the finances must be kept separate (checking account, leases, tax records etc), it's crucial to keep each cell of the series separate. The shares of the LLC are in revocable trust for estate purposes. Something to think about as you grow.

Insurance and umbrella policy too!

Don't be negligent :)

What if I am not negligent?

I'm not saying I want to hide my name so I can be negligent and get away with it. Sorry if that was the impression people got.

Kurt said --> What if I am not negligent?