LLC formation question from Florida
Hi All,
I am looking to form a single member LLC for my home flipping business but I wanted to know if I can use the same LLC for my "buy and hold/short term rental" business?
You want to separate them. The main reason is for liability protection. Flipping properties involves higher risks and potential liabilities compared to long-term rental properties. If a legal claim or financial issue arises from a flipped property, it would be contained within the home flipping LLC and would not affect your rental properties or their income. The second reason is for Tax purposes.Flipping properties are typically considered short-term capital gains, subject to higher tax rates. Rental properties, on the other hand, may provide opportunities for long-term capital gains, depreciation deductions, and other tax advantages. By separating the two companies, you can optimize the tax planning and strategies specific to each LLC. Lastly, id using OPM or (financing) it's easier to separate them. Lenders may have different criteria and requirements for financing these distinct activities, and maintaining separate entities allows you to access specific financing options for each type of investment. Additionally, if you plan to expand your real estate portfolio, having separate LLCs can make it easier to acquire and manage additional properties.
Hope this helps. GL!
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Beware the scam letters that flood your mailbox when you open the new LLC - they will be asking you for various forms of payment saying you need XYZ to stay within compliance. Can it all - bogus.
Thank you John!
I think you can go either way with it. Florida is so easy to open an LLC in via sunbiz.org that you might as well separate them out. As to not repeat what others have said here, I'll simply mention the process. I'm sure you know this, but others might now. Go to sunbiz.org, the official site of the State of FL Dept of Corporations and click on "Start a Business" and then choose the entity type you want to form. The wizard takes you right through the process through payment. Then, take that info over to the IRS link: https://www.irs.gov/businesses... and follow the wizard through to get your Tax ID number (EIN). If you're going to borrow money, even as a single-member LLC, you'll need an operating agreement. For a single-member entity, you can do that yourself through Law Depot or a similar site. Once you get partners, don't do that part yourself...use an attorney. I made that mistake once and, via a dispute with my much better funded partner, I lost my shirt. I know that doesn't directly answer your question, but I didn't want to repeat what others have said. We probably don't split out our business dealings enough, but I also don't like doing all those sets of books. Good luck to you.
Thank you, Doug!
To John's point, you would want to separate them out primarily because flipping is an "active" activity and holding is a "passive" activity. This factors in on legal and tax aspects, but for different reasons. Keep in mind that an LLC (when set up properly and all the corporate formalities/documenting are followed) acts as a lead bubble around a particular business endeavor...meaning anything that blows up within that business, the damage is contained to that business alone...and any liabilities that occur outside of that business doesn't penetrate through to affect that business.