Just finished up virtual bootcamp and am currently in a state of information overdrive (and loving every second of it). My business partner and I have created an LLC as a partnership in preparation for stepping out on our MHP adventure, but I have a question for those with some more experience about corporate structure.
Frank supplied us with two examples of structures that are viable to run a MHP business. Basically there is an LLC “umbrella” or holding company and then separate LLCs for each park, a management company, and home sales company.
My question is: Can profits/capital flow from the “umbrella” LLC in and out of the Park LLC and management company freely or will that open up the companies to liability. If the management company is separate, it is my understanding that it will basically operate as a loss since we would only be paying out a manager without a specific income in that particular entity.
If anyone has experience or could assist in helping me understanding the overall structure that would be greatly appreciated. Thank you!
These questions always tend to be for an attorney or CPA who would know how not to move or mix assets. It gets complicated and a quick call or consulting session would clear away all issues typically.
Income and cash can flow between entities freely without liability if they are setup correctly depending on your circumstances. I would take the advice you received to your accountant to be sure it applies to your circumstance,
I disagree that the management company operates at a loss. Not an expert on this, but my CPA tells me that the IRS may look into companies that always operate at a loss. You can structure management fees paid from the park entity to the management entity to optimize your tax situation, and reduce IRS scrutiny. Please consult with a CPA on this matter, as it varies for everyone.
The MGMT Company should not operate at a loss.
Charge yourself a 5% MGMT fee (based on Gross Rents). Use this money to pay yourself a salary 30% of the Gross profit and 70% as a Dividend. Set up the MGMT company as an S-Corp.
This may seem weird with one park, but once you get 3,4,5,6, + parks keeping track of MGMT expenses related to each park will be a nightmare. It’s way easier to pay for all your Park Related MGMT charges from the MGMT company then it is to track 60 miles for Park A, 45 miles to park b, etc. Plus think of your cell phone, are you going to keep track of each call? etc.
If you find that the MGMT company is losing money then bump the 5% monthly fee to 6%. Or say it’s 5% monthly with a $1,000 per park minimum.
If you set everything up correctly, you could even offer MGMT services to other park owners. Then someday you could actually sell the MGMT company for a profit.
Thank you Gentlemen. I figured these were the answers, I just wanted to make sure my line of thinking was correct and will be following up with an accountant soon.