Should I create an LLC to management a few properties?

General Real Estate Investing
1

Hi all,

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Should I create an LLC to management a few properties?

I came across an opportunity to manage the rental aspects of a couple of properties in Manhattan NYC. The landlord is an old timer and nice guy. I proposed that he sign responsibility to us (my friend and I) as property managers. I do have a nyc state Brokers License so I know i’m legally allowed to do this.

My question is whether or not its a good idea to form a sort of Property Management LLC. Would there be any tax breaks? or would it be useless considering the size of the operation. Its a very small operation. (3 units for now and possibly 10 by summer time).

Thank you for reading. Any response would be greatly appreciated.

Jon

2

There are no tax breaks for being an LLC. Business expenses are always deductible irrespective of entity structure.

An LLC is a liability protection tool.

3

Thank you for taking the time to respond.

Would there be anything I should do or worry about?

4

Yes, you need to worry about potential losses - such as a fire burning down your property, theft or vandalism to your property, the tenant breaking your windows out or you getting SUED for one of a million potential reasons. And the solution for that is to get good insurance. Call up your (hopefully independent) insurance agent and get some good insurance coverage on your property. Also be sure to get an umbrella policy once you incur some significant assets (or debts / obligations).

The use of insurance in conjunction with an LLC will help you out if/when you ever have potential losses.

5

be worried about “nice guys” and “friends.”

Get everything in writing, both with the owner and with your friend: who pays for what and when. What happens when someone doesn’t pay (ie: landlord doesn’t repay you for the $2,000 deck repair). Who is responsible when tenant breaks something, and landlord holds you responsible because you put in a sucky tenant. How do you submit bills to landlord to be paid? How are you and your friend splitting responsiblities, and who gets paid for what. Who goes at 2 am when the water heater blows out. When you go and handle all the 2 am emergency calls, but he still gets a 50/50 split on the income, what’s the resolution? What’s the exit strategy?

Managing properties is easy. It’s all the other crap that you need to worry about.

Generally I don’t recommend going in to business with friends. You end up losing one or the other. I also don’t recommend going into business with family. It just screws up Christmas.