LLC now or after my first management client? I'm getting three different answers

Tasha Morgan· Short-term rental host turning it into a property management company· Named it, Real Estate·Aug 7

I've hosted my own short term rental for four years, and two other owners on my street have asked whether I'd manage theirs. That's the whole business so far. A name I like, a domain, and two verbal yeses from neighbours.

Where I'm stuck is whether to file the LLC now or wait until someone actually pays me. My brother in law says file immediately because I'd be handling other people's property and money. A friend who has run a side business for years says I'm overthinking it and can operate as myself until there's real revenue. Someone at a meetup told me property management has its own licensing rules in some states and the entity is the least of my worries, which was a fun thing to hear at nine at night.

The filing fee in my state is a few hundred, so cost isn't really the blocker. It's that filing feels like a commitment, and I'm not certain I won't hate managing other people's guests.

For anyone who does this: did you form before or after your first client, and did it matter? And is the licensing thing real, or was that guy being dramatic?

4 replies

Rachel Goldstein· Registered·Aug 7

The licensing thing is real in a lot of places and it's the part I'd chase first. Managing property for other owners for a fee touches real estate licensing law in my state, and the rules about collecting rent on someone else's behalf are different again. I'm in the middle of setting up a brokerage so I've been living in this exact rulebook. Your state's real estate commission website will answer it in an afternoon.

The entity question is honestly the easy one next to that. I wouldn't sign a management agreement with a neighbour until you know which side of that line you're on.

Cheryl Dunn· Open·Aug 8

I won't tell you what to do here, because entity choice depends on your state and your own situation and mine isn't yours. What I will say is what I see. People who wait usually wait because filing feels final, and then the first money lands in a personal checking account and the bookkeeping for that first year becomes a mess I get paid too much to untangle.

The thing that matters more than the timing is that the day money starts moving, it moves through an account that's only for this. Whatever wrapper you end up choosing.

Tasha Morgan· Named it·Aug 9

The separate account point landed harder than the LLC question, because I've been collecting cleaning fees for my own place into the same account I buy groceries from for four years. That's going to be a delight at tax time. I've got an appointment with the real estate commission website and a coffee tomorrow morning.

Dana Kowalski· Open·Aug 9

The part I'd worry about before either of those is that these are neighbours. A management agreement with someone you see at the mailbox is the hardest one to enforce and the easiest one to skip writing. Write it anyway, and be specific about what happens when a guest breaks something, who approves a repair over a certain amount, and how either side gets out.

Friendly clients are lovely right up until the first bad guest, and then you'll want a piece of paper that says what you agreed at nine at night on the driveway.

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