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LLC for Privately Owned Properties

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  • 12-29-2010, 11:19 AM
    tenantweary
    LLC for Privately Owned Properties
    My question involves real estate located in the State of: California

    Boss wants to get an llc to manage some buildings that he owns. He also has ambitions of managing other properties. I know that to be a professional management company a brokers license is required. Does it matter how the llc is formed ie, primary business activity definition and do we need a broker before we form or can we do this after the formation of the llc?
  • 12-30-2010, 07:57 PM
    Mr. Knowitall
    Re: LLC for Privately Owned Properties
    It's pretty easy to form an LLC. But if you need to be licensed to engage in a particular line of business, you need to be licensed whether you're acting as an individual or as an employee of an LLC.
  • 12-31-2010, 08:09 AM
    SChinFChin
    Re: LLC for Privately Owned Properties
    Quote:

    Quoting tenantweary
    View Post
    My question involves real estate located in the State of: California

    Boss wants to get an llc to manage some buildings that he owns. He also has ambitions of managing other properties. I know that to be a professional management company a brokers license is required. Does it matter how the llc is formed ie, primary business activity definition and do we need a broker before we form or can we do this after the formation of the llc?

    Here are the PM requirements for CA:

    http://www.allpropertymanagement.com...alifornia.html

    In almost all states, including NY where I am, a real estate Brokers license is required. However, state law also allows an entity set up to do property management for "your own properties", WITHOUT a brokers license, as state law describes property management as ", negotiating leases, collecting rent for OTHERS for a FEE".

    I have set up a "C Corp" to manage my own properties, mainly to be able that I can take advantage of some tax benefits. But I was advised if I submitted an application to set up either a "Corp" or "LLC" with the stated business purpose of doing "property management", the NYS Department of State here would require me to submit evidence of a "brokers license" before they would accept the application, or they'll reject it.

    What I did was open up the "C Corp" as a "business service" entity. The legal distinction here is if "you collect rent" for others for a fee, then your are required to have a brokers license and be bonded. But had I chosen to do business services for others, I would simply pick up the rent checks and deposit the money into a designated account controlled by the owner.

    Thus, I am only providing business services such as messenger service ( bringing checks or cash to the bank ), cleaning, repairing, answering the phones, showing rentals etc., work that none of which requires licenses to do. As long as I am not collecting the rent, placing the money into my own account, deducting a commission, but deposit the money entirely into the landlord's account, and the then bill him for "business services", calling it a business service, is legitmate.

    And because this entity I set up is managing properties for MYSELF, not for others, it can also legitimately collect and deposit the rent checks issued to me had I chosen to do so, and not in violation of the law. Thus, this landlord can open up an LLC, openly do PM for his own properties, and not be in violation of the law. He can do so for others as a business service as long as he is NOT cashing the rent checks.

    The key to the issue is "managing for others" and "collecting a fee" for it. Thus, I can collect rent, negotiate leases for a close relative, taking care of his property for NO FEE, and also not in violation of the law.

    I have discussed this issue with my attorney, and my CPA who managed commercial rentals without a brokers licensed, and they agreed I was correct.
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