I am starting my real estate investment career looking to purchase two 4 Plex buildings to start with in the Houston TX market. I have setup the LLC that will hold the properties. I plan on managing the properties myself. Should I setup a property management LLC and lease the properties in the management LLC name to the tenant and bill my management time back to the property LLC? I also want to build corporate credit so I am assuming I need to have my management LLC setup to start that process. Thanks for your wisdom on these questions.
Kevin R.
Not an expert here but I have been managing my own properties for 19 years. Matt & Mark almost never recommend doing a management company for your real estate holdings except for one use case (in a moment) because you are converting passive income to active income which would trigger employment taxes which is a huge percentage of your operating income. Passive income is the best form of income and so you should shoot for building that. HOWEVER, there is one downside to passive income, you cannot put money into retirement accounts as those are geared for active income. You would need to be certain about your actual return on cash to decide to convert passive to active income -there are not only employment taxes, but time, energy and cash costs related to maintaining another entity. If you have another way to put money into a retirement account from other active income work you do (employment, service you provide etc), focus on maxing out those options before considering a management company strategy. There is no added liability protection from the management company, the only advantage is to put money into a retirement account. I decided it wasn’t worth it to me. Good luck.