When you’re the sole proprietor of a business, you’re taking on a lot more risk than some people might appreciate. (Don’t worry, you’re appreciated here.) Without further protections, your income and property holdings can get tied up with your personal assets. That is, unless you start a property management LLC (limited liability company).
In short, a property management LLC is a corporate structure that separates the business members’ personal assets from those belonging to the company.
Let’s look at what it means to start a property management LLC and how it could benefit your business.
1. A property management LCC protects your personal assets
Some property managers run their real estate operation as sole proprietors without a separate LLC to protect their assets. This often works out until something unexpected — like a lawsuit — happens, and that can really wipe you out.
That’s because if you’re sued without legal protection for your business, everything you own (your house, savings, etc.) are all fair game for the plaintiff.
Now here’s the good news. If you start an LLC, your personal income and assets are safe. Only your company’s profits and assets are at risk. This is arguably the main reason people form LLCs for their business ventures.
2. Expanding the business is easy
As your real estate business grows, you might need a co-owner (or several) to get the work done. In a property management LLC, the company owners are called members. Adding them is easy, and you can add as many as necessary to run the business.
3. Enjoy pass-through tax status
Some corporations can be taxed twice. It’s even called double taxation. The first tax comes at the corporate level. The remaining profits are then passed along to owners, members and shareholders, and each individual is taxed (that’s the second taxation) for their personal income.
Luckily, LLCs are exempt from double taxation. They qualify for what’s called pass-through taxation. The profits from your business are first distributed to owners and members to report as personal income. The corporation is not taxed. That means more money for you and your members.
4. LLCs are easy to set up
There are several ways to set up a business or corporation, but it’s unlikely you’ll want to do anything but an LLC. Here’s why.
C-level corporations have certain income-producing advantages, but they tend to be larger entities that are very complex in nature. They are also subject to double taxation.
S-level corporations get the pass-through tax benefits of an LLC, plus other benefits, but there’s still a more complex legal framework than an LLC.
LLCs are the easiest operations to set up. They’re not technically corporate structures, so there’s less paperwork and reporting involved. Real estate managers who don’t want to risk their personal assets as sole proprietors will often form a property management LLC simply because it’s so easy to start one.
Yardi Breeze is designed for businesses of all sizes
The property management companies that use Yardi Breeze come in all sizes and corporate structures. Some are property management LLC partnerships (an LLC with two or more members), some are non-LLC sole proprietorships and others are S-level or C-level corporations.
The software works at all levels because Breeze supports multiple users on a single account. You can even set up user roles, giving users access permissions that apply to their role. For instance, maintenance team members will only need access to the maintenance tracking feature, while general partners can be given full access.
It’s just another way Breeze keeps your business data secure.
Property management LLC disclaimer
Please note that this post does not constitute or replace legal counsel or advice from a professional tax advisor. We hope this information is helpful as a starting point, and we encourage you to do more research.