I have seen that Dave and Frank recommend, management company, park LLC and homes LLC.
In this set up does all rent and all expenses go through the management company and then the management company cuts distributions to the park LLC or its members?
Or does the management company only pay for costs involved with management and labor and the Park LLC collects rent and cuts checks.
I have read every post on this forum and it seems like there are a lot of mixed reviews.
My real estate attorney says his strategy would be that the Park LLC leases the whole property out to a separate “Renter LLC” with a triple net lease. Then the “Renter LLC” assumes all liability and responsibility and the park LLC just collects one large check.
I recommend having Park LLC collect lot rent and pay for park expenses, Homes LLC collect home rent and pay for homes expense, and you probably don’t need management LLC but if you decide you want it, each of Park and Homes LLC can pay management fee (5% of gross?) for management and you can pay yourself out of that.
You’ll need to bifurcate the home rental leases (one lease for home rent, another for lot rent).
The reason for keeping it separate is to keep the lower risk high value park assets separate from the high risk low value homes assets (tenant lawsuits, etc).
If you reject this, then it probably doesn’t matter if the park collects the home rent and forwards to Homes LLC or vice versa. But I wouldn’t go through another layer of management LLC.
You should set it up so you understand it and can explain it. Don’t make it too complicated, and remember the LLC provides some liability protection but in practice insurance is the first and best layer of protection.
After talking with my CPA and lawyer, I’m planning to have two LLCs: one for the land, and one for homes & management. The homes/management will hold the leases, collect all rent, pay some of the incidental bills (phone, etc). The homes/management will forward lot rent portion to the land LLC, and the land LLC will pay the basic expenses related to the park: mortgage, RE taxes, water, insurance. There will be and agreement between the LLCs that outlines this relationship. The good part about this setup is that the land LLC’s books should be pretty simple. The homes & management LLC books might be a different story!
See if your state allows a Series LLC - they’re newer and allow compartmentalization of assets. Simplified tax reporting and overall management. I am in the process of setting one up now for my various properties, and using a different DBA where segmentation needed.
This is in TX, but understand there are several other states that h ave something similar. You have to set it up with special language in the articles of incorporation that allows this. These are newer and untested in the courts, like so many things Park owners have to deal with these days.
Here is how I set up my structure.
First I have My Ownership LLC.
Ownership LLc is the managing member ofeach MHP llc. Each mobile home park gets its own MHP llc.
Last I have a Management S Corp. The S Corp has management agreements with all of the MHP llc’s.
Thus- all of my office stuff, travel, insurance etc is covered by the S Corp. Dividends flow through the Ownership llc.
I do not separate out the homes ownership from the MHPllc. It is all done under one roof. I use a lease . option method of selling homes to new owners. Back in the day, when we had inhouse financing, I had a financing entity. With the changes via the safe act, and now the IRS rules stating the repairs and maintenance threshold is $2500- the numbers work in the favor of keeping those expenses in the park, and not in the separate LLC.
We do something very similar but we do separate the homes out. This may be something I am starting to regret because it is extra complication to track the separation (separate leases, bank accounts, charges, invoices, payrolls, etc).