Hello,
For anyone who uses the Frank and Dave 3 seperate LLC ownership method (Management Company, Park LLC, Homes LLC) Which LLC’s do you use to do the following:
Employ the park managers (I assume management company)
Put utility accounts under
Use on Lease
Receive lot rent income
Pay expenses
Pay yourself
Anything else I forgot to mention please feel free to include. I have not found a real comprehensive list of what each LLC does and is responsible for on here
I have seen several Park owners on here saying that the Management company and Park LLC are they way to go and that the Home LLC was overkill in retrospect. Unless you’re offloading POH as a licensed retailer I would probably stick with the two only. Curious if anyone strenuously disagrees, just my 2 cents.
I am using a Series LLC for management and have DBA’s to logically separate physical assets.
I use separate LLC’s for my parks and recently started a management company LLC. I plan to have the utility accounts, lease, receive lot rent, and pay expenses with the park llc’s. All employee’s I plan to pay from the management company. My thinking is to keep the liability of the employees away from the equity in the properties, by paying them from the management company.
I also have an LLC for the Cash Program which I’m about to start.
I’d also love to hear the correct way to do this.
So I know that if I wanted to start a management Co. here in Kentucky I would need to have a brokers licence or maybe just an employee with a brokers licence.
Is this not the case with this 3 tier llc setup because the same group ultimately owns the properties?
Ken
I have a LLC for each of my parks.
But…
You need to be clear on what you are getting by putting assets in a LLC because I think most people think they are getting more protection then they are…
The only time it will give you any protection is if you are sued and loose and the judgment is larger then all your insurance and the value of the park combined.
In other words; only in a situation where you will just walk away from the property and let the judgment collectors take possession of it. That is to say, you did something so horrible that you end up with a judgment against you for millions of dollars. Such situations do happen, but they are rare.
And another point; do you really want to be holding title to a bunch of homes? Would it not be better to sell them off and just be responsible for collecting rent and maintaining the grounds? And putting the capital you have tied up in those homes in your pocket instead?
I answered a version of this question in another thread, a long time ago. I see it bumped up but here’s an update:
In the end, what “works” for you may be different – there are pluses and minuses to everything.
We have 1 park in Michigan and 4 in Texas. Texas parks were operating on different sets of principles that made no consistent sense from one park to another, which made it hard to compare (e.g.) expense ratio of location A with location B – “how is B doing compared to A”?
So I jumped through a bunch of hoops to try to “square” things, which I now regret because the information gleaned was not worth the hassle it caused.
In any case, we run 3 Texas parks together with 1 Texas homeCo covering all 3 locations. HomeCo is also ManagementCo – sort of. Out of HomeCo we pay our Texas regional manager, and all the park managers, and all the workers that work for park managers who rehab homes, mostly. And landscaping, etc. Whatever needs to be done.
The problem is allocating the cost of the payroll over the “Park” to which it is associated. Most of the manager’s time and energy (and the workmen too) is spent dealing with the POH or the “Homes” company, – selling homes, rehabbing homes, paperwork on homes, showings, renters, blah blah blah.
But then again, some of park manager’s salary should be allocated to the “Park” too – collecting the rent, knocking on doors, etc.
So how much of payroll should be allocated to the Park and how much to the HomesCo is the first issue. Simplest is maybe Manager salary (and “outside / landscaping” workers) paid by Park and “worker” (rehab, service call) salaries paid by HomesCo. That’s a coarse cut.
The problem is now you have 2 payrolls, 2x overhead, 2x the state employment oversight agency confusion, etc.
So we have everybody paid out of “HomesCo” which we consider to be “HomesCo + state-specific payroll/administration Co.” We have one for Texas and one for Michigan because state-specific companies that operate only within 1 state seems like a good idea.
But, oops, we have another park in Texas that is encumbered by a mortgage and to make a long story short, that park has its “own” HomesCo. So we actually have two HomesCo’s for Texas and one for Michigan. Two of those are park-specific and the third covers 3 parks.
And oops again, we have a “real” managementCO which is in California where I live.
So that’s 5 park cos, 3 homesCos/park-management co, and 1 management co that manages other co’s.
THIS IS TOO COMPLICATED!
To answer your question: In our case:
Park managers – employed by HomesCo (ParkCo pays HomesCo a “onsite mgmt fee” of [appropriate amt]). Might employ by ParkCo if manager is not doing much for HomesCo.
Utilities – ParkCo for park things, HomesCo for homes if possible.
Use on Lease – ParkCo for lot lease, HomesCo for home lease
Receive lot rent – ParkCo. Actually ParkCo collects home rent for HomesCo too – and forwards the money.
Pay expenses – whichever company the expense relates to.
[Administrative convenience in payment leads to intercompany billing which is a real hassle].
Pay myself – ParkCo AND HomesCo pay a “offsite mgmt fee” to ManagementCo which pays me and my administrative staff. I also keep whatever profit ManagementCo makes after it pays its expenses (payroll, etc).
Here are some things that happen, though:
Petty cash – owned by the park or homeCo?
Credit Card – whose credit is it against?
What happens when you pay the park electric bill with the MGMTCo credit card? What happens when your manager deposits HomeCo down-payment money in the Park rent account? Your resident makes the check out to the wrong company? You have someone sign the wrong lease?
The point is, complication for its own sake is bad. You have to understand what benefit you are getting by setting up multiple companies.
In this case,
(1) High-value, low risk asset is the Park. It may be encumbered. You want a clean balance sheet and no hassles. Don’t put liability (rental homes) in this asset. This is your ParkLLC.
(2) Everything else goes into OTHERLLC.
(3) Maybe #2 should be state-specific or you want another company for other management/tax related reasons (but not for “extra” liability protection).
If I were advising a new person, I’d say set up “ParkCo” and maybe “HomesMGMTCo.” I don’t think you need more than that. Second purchase, NewParkCo and (a) HomesMGMTCo 2nd division or (b) NewHomeCo.
NewParkCo2
NewParkCo3
NewParkCo4
just keep HomesMGMTCo (with divisions, 1,2,3,4 and general–you pay yourself here).
If you are getting into multistate issues then that might or might not change your plan.
I want to revive this question because I am wondering something along the same lines as the original post. I currently have a park LLC that owns the real estate, utilities and taxes etc are in that company. But I have a management company LLC that operates the park. I will soon be ready to look for my second park and I am wondering should I use the same management company LLC for all the parks I am able to acquire and have all management go through that one? I have been considering this and I think it would be easier to oversee, but I am wondering what it does to the separation of the parks if the same management company operates them. I will consult an attorney when it’s time.
Yes, same management company, unique property level LLCs.