Re: mobile homes (long) - Posted by osupsycho (OK)
Posted by osupsycho (OK) on March 15, 2006 at 11:04:21:
First off thank you for you comments as they were just what I was looking for. Secondly after I posted this I realized I left out some of my motivations for having this property management company that may change the viewpoint some.
A few years ago I took RKs advice and got a book call “Inc and grow rich” and loved every bit of it. If you haven’t read this book then I would highly suggest it (but it is hard to come by because I think it is out of print). This book reveals many benefits of having your own C corporation ranging from some mostly unknown tax free gifts that a company can give its employees (who will be you) to the legal protection that most of us already know. It also goes into some of the reasons to have different levels of companies and the benefits of this. One major advantage of the C corporation is that you can set your tax filing date whenever you want (I am sure you already knew this but wanted to add it for the others who may read this and don’t). This can allow you to play with when things hit the company and personal taxes as the dates can be different. This book made a believer out of me and the only question at this point is how I am going to have my C corporation.
But on to the points you make:
“There is always the question of going to the next level(s) of owning a property management company and maintenance service. Personally I think most of us are further away from those realities than we think once the numbers are crunched.”
This right here may be the end of my whole idea but looking at it so far I don’t see it that way. I mean on a basic level we could have this “company” and do nothing more than we already do. No extra employess or other items just have another entity that we do our management through. Hold the properties or notes in an LLC and then “outsource” the management issues to the property management corporation. This is basically just a distinction on paper but that distinction has some advantages. It would be used as a conduit for funneling what we already do on a regular basis into a the new C corporation. It would mean more paperwork and a little more money (to set up and maintain the corp at the least) but I feel that the tax and liability benefits would outweigh these added issues. The advantage is another layer that someone would have to fight through with a lawsuit and again the tax advantages of the corp that I mentioned above. Once this was already setup and running at a low cost you could evaluate bringing in someone to run the show other than you. That is the point where it gets tricky. Adding an employee (that wasn’t you or your partner) would bring all new trust and money issues. The key to this (as in most any business) is finding the right person and training them correctly. This touches on your “managing managers” comment and is absolutely correct. I suppose it harkens to eeveryones ability to let go and just do the managing. For me I don’t think it will be an issue (as I have done a lot of managing in my JOB and actually have a masters degree in management) but I’m not there with my lonnie deals yet so I guess I will have to find out on my own.
“We are not entirely “B” business owners but reading RK and you see how much he values real estate investing and cash flow. That is what we create and manage.”
Actually that sounds more like the I side of RKs quadrant to me. He seems very adament about his definition of a B (business owner) and at this time one of my goals is to meet his definition in the future. To truly be able to walk away and not have any contact with the business for several months and it will be fine. Not sure I will be able to do this (can any of us truly disconnect for that long?) but want the business to be able to handle it if the occasion arises.
“You also mentioned several times reducing your liability by owning a property management company. If you control all the entities and property, I suspect that there is little true protection if negligence occurs. Courts and attorneys can and do find their way through the web if the case warrants it.”
My points on reducing liability are mainly for more of the frivolous type of lawsuits. By having the entity that deals with the public the most (the property management company) be a smaller target money wise. If it doesn’t look like a target then you are much safer. But if you are out there dealing with people and your entity shows all kinds of property and cashflow… just looks real enticing to the wrong crowd. This is something that I learned from Ernest Tews materials and really believe in. Not that I have a real worry about this but more of an icing on the cake type deal. I wouldn’t go to all the work of the property management company just for this though. If there is truly negligence as you mention then there is no reason to be worrying about any entity or grouping of entities to save you. If you have done something truly wrong then don’t shirk it or try and hide behind your entities.
“I am not a tax guy by any stretch but I do believe that you loose a great deal of the tax advantages of rental properties if you are not actively involved. Think that was the tax law change that nailed the Doctor and Lawyers and began the S&L crisis but I could be wrong.”
This is a very good question that I am going to have to research and get back on. This is exactly the kind of little sticking point that I wanted to see about this idea. So know to find out if it is a problem and if it can be overcome.
“So what does that leave us with? For me, it means I keep acquiring property, managing as I need to, hire more and more out and grow the portfolio slowly but surely. I suspect that in time the decisions will necessitate themselves regarding management companies etc.”
I covered this mostly above but again the idea I present can be very basic or much larger however you want it.
“Who knows, before that becomes a problem it may be wise to sell off the property and owner carry. With multiple exits, we are in good shape.”
Well I am not looking at this as a problem but instead as another opportunity. The property management company in my mind would be something that provides another level of liability protection, another level of tax advantages, the ability to put things on auto pilot (somewhat), as well as some other minor advantages. One of those would be that if the company is run correctly and doing well I suspect that other people will want to use it for their management issues as well. It is entirely possible that you could have the property management company be something that turns into a money making venture on its own by servicing other peoples properties. This would be completely up to us but is something that should be explored if the desire is there. Another advantage is if you are flashy enough maybe you could get your own TV show on cable ala “Flip this House”… OK just kidding on that one
The last thing I want to say is that I am laying a lot of things out there that are just ideas and thoughts and would need to be explored by anyone that has interest (in other words don’t take anything I say as gospel). I have gotten many good ideas out of the archives and other readings and can only hope that this will help someone else someday.