The wife and I have had a rental property for almost a year now. Purchased a new construction 3br, 2bath, 2 car garage townhouse. I do the maintenance as needed, our current property manager collects 10% on $1500/mos but does all the screening, 6 mos leases (30 day notification) and will file paperwork if they fall behind rent or need eviction (hasn't been a concern yet).

My question is, is it possible/feasible to initiate our own property management company and pay it the 10% of rents, as well as run all maintenance issues through it as well? I'd rather be putting the $1,800/yr of her fees into our pockets and be able to utilize some tax breaks while running a separate company. Plans are to purchase additional properties in the near future too.

Thanks for any advice. PM's are welcomed if you're currently doing something similar.

EN09

Vertical integration, hmmm?

Well, you are actually looking at this too short-term. Do you want to be in the property management BUSINESS, or do you just want to manage this property?

If your real estate investments take off, do you want to manage ALL of the new properties as well?

Things to think about, and talk over with your partner.

The thought process is, I feel these monies and fees could be kept in-house. Since I am currently maintaining the property as far as any small repairs, monthly filter changes and scheduled services of a tankless water heater (which I'd never put into my own home and may change over to a quick-recovery gas w/h in the future). The lawn is the responsibility of the tenant.

Is it legal tax-wise to be the property owner, and owner of a management company, then run all maintenance costs as well as hourly labor charges and "bill" the property owner?

As property owners we could deduct these as cost of doing business. As management company the current outgoing costs, like poker leaks, would be plugged.

Down the road as we pick up additional properties the savings and tax breaks might be significant. If it operates well enough I would have no qualms in property management for other entities.

Simply put, is this feasible tax-wise in the beginning with a single property, before I go searching out a qualified accountant?

First, I think paying a property management company 10% under these circumstances is f'n insane. If it was me, I'd just do it myself.

I'm not following why you think there is an advantage to having a separate "management company". I must be missing something here. What exactly do you think the tax efficiency is here?

Maybe I'm over thinking this... As property owners we could us as tax breaks all fees and costs of maintaining/leasing the property. As owners of a separate property management company, we would keep money currently being shipped outside the circle in-house.

Basically, one hand billing and paying the other hand? Keeping all the fees yet writing off all the costs? Is this a legal move? I'm an investment property newbie and am realizing there are more hands reaching into my pockets than I thought there'd be. Plus, since I'm the one doing the property monthly maintenance, can I bill hourly if it was wet up in a separate company? Sorry if this seems redundant... Just curious if there was anyone in the forum with experience in this.

It is legal. People do it all the time in various professions and industries (do business with other entities that they control). That's not the focus of my comment. I am more concerned that you are being penny wise, dollar foolish in this. You could renegotiate the percentage of your prop. management deal, or find one for 6% with the same duties, for example, instead of forming the company.

I guess what I am ultimately saying is don't form a property management company for the sake of servicing one client (your current property). It will be a separate set of problems for you. If you really wanted to do property management, then that's what you would have already done.

Your separate entity would need to pay taxes on its profits. So there might be some tax savings here and there I doubt it would be spectacular. Especially considering the low amount you're going to charge yourself I can't see how it's going to net you a lot of money after costs and work put in.

Check to make sure you won't have to create a licensed property management company and take real estate licensing courses yourself. In my jurisdiction, for example, an individual or a company doesn't have to be licensed to do its own property management (i.e. the same entity who owns the property can hire an employee to do the management), but if any other entity does the property management, that entity must be licensed.

So if you went forward with your plan to set up a management company in my jurisdiction, you would have to take three RE licensing courses (intro, property management and brokerage management) and pay an annual licensing fee for both yourself and the brokerage. The cost of the courses would be around $1500, and the annual fees would be $800 or so (plus the costs of continuing professional development, maintaining a trust account).

Obviously your plan would not be worth doing in my jurisdiction- check the rules in your own to see what the situation would be.

I think this is the point the OP is missing (unless I'm completely missing something).

Assuming this is in the U.S. there are certain time where having a separate entity might allow you to play a few games for tax purposes, but mostly likely not at the scale OP is talking about.

The simple answer is yes.


I am in the process of doing something similar.


Starting my own real estate management business.

This is correct. I wouldn't start my own management business to handle 1 unit.

C Corp/S Corp in whatever combo would allow lots of gimmicks with the amount of fees paid and I doubt the IRS would really come after you unless you were going crazy with it.

There might be some liability benefits as well, but I'd take a wild guess that this sort of stuff isn't proven in court and you'd likely botch some esoteric detail that would negate the liability benefits. (Not to mention umbrella insurance is so cheap, who currs).