Creating LLC for fix and flips

Investor · Farmington Hills, MI · Member since 2015 · 11 posts · 3 votes

Does anybody have any recommendations/insight on creating my operating agreement and articles of organization? This will be for my father and I. So I'm curious if this can be done online or would it be in our best interest to schedule with a lawyer to draft it?

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Jason MalabuteBusiness Member

Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 895 votes

5mo

@Matt Petrovski congrats on getting started with your dad. A couple thoughts from the tax side that the lenders above didn't touch on.

For fix and flips specifically, the IRS treats your profits as ordinary income (dealer status), not capital gains. That means you're looking at self-employment tax on top of your regular income tax, which can add up fast. A multi-member LLC with your father defaults to partnership taxation (Form 1065, K-1s to each of you), but depending on your projected volume and income, an S-corp election could save you a meaningful amount in SE tax. That's a conversation worth having with a CPA before you file your articles.

On the operating agreement question, I'd strongly recommend a lawyer for a family partnership rather than an online template. It's not just about the boilerplate stuff. You need clear language around capital contributions (who's putting in what), profit and loss allocation (does it match ownership percentages or is there a preferred return?), management responsibilities, and what happens if one of you wants out. Online templates almost never handle those items well, and a poorly drafted OA between family members is a recipe for problems down the road. A good real estate attorney in the Detroit area should be able to draft something solid for a reasonable flat fee.

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Bryce Fairburn
Lender · Lake City, MI · Member since 2019 · 118 posts · 42 votes
5mo
I have done this online before, pretty straight forward, but you also get a very basic operating agreement. If you are looking for something more robust and detailed then I would look to a lawyer to get it drafted up.

I can help you in accessing financing, we regularly provide funding for LLC's doing fix-and-flips. Send me a DM and I would love to help!

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Erik EstradaBusiness Member
Lender · Member since 2022 · 6k+ posts · 1k+ votes
5mo
Quote from @Matt Petrovski:

Does anybody have any recommendations/insight on creating my operating agreement and articles of organization? This will be for my father and I. So I'm curious if this can be done online or would it be in our best interest to schedule with a lawyer to draft it?

You can create one on Legal Zoom or directly with your state's secretary of state website. If there's a specific way you want to structure it based on your needs, you might want to consult with a CPA or Attorney.
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Jason MalabuteBusiness Member
Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 895 votes
5mo
@Matt Petrovski congrats on getting started with your dad. A couple thoughts from the tax side that the lenders above didn't touch on.
For fix and flips specifically, the IRS treats your profits as ordinary income (dealer status), not capital gains. That means you're looking at self-employment tax on top of your regular income tax, which can add up fast. A multi-member LLC with your father defaults to partnership taxation (Form 1065, K-1s to each of you), but depending on your projected volume and income, an S-corp election could save you a meaningful amount in SE tax. That's a conversation worth having with a CPA before you file your articles.
On the operating agreement question, I'd strongly recommend a lawyer for a family partnership rather than an online template. It's not just about the boilerplate stuff. You need clear language around capital contributions (who's putting in what), profit and loss allocation (does it match ownership percentages or is there a preferred return?), management responsibilities, and what happens if one of you wants out. Online templates almost never handle those items well, and a poorly drafted OA between family members is a recipe for problems down the road. A good real estate attorney in the Detroit area should be able to draft something solid for a reasonable flat fee.
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Drew SygitBusiness Member
Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 8k+ votes
5mo
Quote from @Matt Petrovski:

Does anybody have any recommendations/insight on creating my operating agreement and articles of organization? This will be for my father and I. So I'm curious if this can be done online or would it be in our best interest to schedule with a lawyer to draft it?

You can Google to find standard templates, but it's the other samples that will be more valuable.
NO ONE knows everything, although attorneys like to pretend they do.
Over the years, we've experienced and encountered many new challenges that led to us improving our contracts.
We sit down and create some language to add and when we think it's "good enough" we have one of our attorneys review & approve it. This often requires some back & forth.
So, find a template, then do some digging to find out what you don't know and adapt.
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Jason MalabuteBusiness Member
Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 895 votes
5mo
Congrats on getting started. The most important thing to know before you form anything is that fix-and-flip income is not taxed as capital gains. When you flip regularly the IRS treats you as a dealer — the properties are inventory, not investments — so profits are taxed as ordinary income at your regular rate plus self-employment tax on top of that. It catches a lot of new flippers off guard.
For a father-son setup, a two-member LLC is automatically treated as a partnership by the IRS. You'd file Form 1065 each year and each of you gets a K-1 showing your share of income, which flows to your individual returns. Make sure your operating agreement spells out how profits are split, how decisions get made, and what happens if one of you wants to exit.
Once your flip income is consistent — somewhere around $50k a year or more — it's worth talking to a CPA about whether an S-corp election makes sense to reduce your SE tax exposure. It's usually not worth the complexity early on, but at higher income levels the savings add up. One more thing: keep any rental properties in a separate entity from the flip business. Mixing dealer property with investment property in the same LLC creates problems you don't want.
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Fulton Abraham Sanchez
CPA| New Clients Welcome| 50 States · Member since 2016 · 418 posts · 89 votes
5mo
@Matt Petrovski, hi. You can do it online, but for a father/son partnership, I’d strongly recommend having it properly drafted.

This isn’t just legal, it directly impacts taxes (profit splits, capital accounts, distributions, exit scenarios). A generic template usually misses the pieces that matter long-term.

Best setup is CPA + attorney aligned from the start so the structure actually supports your tax strategy.

Happy to share what we typically include for real estate partnerships
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Ashish AcharyaBusiness Member
CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
5mo
Jason made a good point about flips being treated as dealer activity. That’s important because the income will be taxed as ordinary income, not capital gains, and may also be subject to self-employment tax depending on how it’s structured.

For the LLC itself, setting it up online is usually straightforward, but the operating agreement is where things really matter, especially since you're partnering with your father. That document controls profit splits, roles, and what happens if someone wants out. A basic template can be found online and there are plenty of resources. having an attorney draft it can be beneficial, but it is not required. A recommendation would be to at least have an attorney look over it and review it to ensure everything looks correct on the legal side, and also consulting with a CPA to make sure everything looks good on the tax side.

Getting the structure right upfront helps avoid both tax surprises and partnership issues later on.

Happy to connect
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Anna HaskellBusiness Member
Member since 2026 · 2 posts · 0 votes
5mo
This is a very common question.

Articles of Organization are usually pretty straightforward since each state provides its own filing form, so you typically do not need anything highly customized there.

The Operating Agreement is the document to be more careful with, especially for a father-son multi-member LLC. You can find templates online or even use tools like ChatGPT as a starting point, but many of those versions are too generic and may leave out important terms around ownership, voting, profit splits, decision-making, and what happens if things change later.

For many people, the best middle ground is to form the LLC first and use a strong standard Operating Agreement from a service like ours or another reliable provider. Then, if the business becomes more complex, you can have an attorney help with amendments or resolutions later on. That is often a much more practical and cost-effective approach than paying for a fully custom legal draft upfront.

BusinessRocket ProTip: Articles of Organization do not automatically provide Liability Protection for an LLC, in order for an LLC to have Liability Protection it must be spelled out in the Operating Agreement of the company.

We are new to BiggerPockets, but we are here to help the community grow with our knowledge of the business formation and business tax space.

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Matt Petrovski
OP
Investor · Farmington Hills, MI · Member since 2015 · 11 posts · 3 votes
4mo
Thank you!!
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Janet Behm
Accountant · West Jordan, UT · Member since 2017 · 180 posts · 95 votes
4mo
Matt,
I trust you are reading the same advice about taxes from most of your responders.
You need to talk to a tax advisor who is an EXPERT in real estate.
They will ask you the questions that will guide you to the best decisions for you and your dad.
Good Luck!
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Corey Bolding
Member since 2026 · 15 posts · 2 votes
4mo
Highly recommend legalzoom
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Ryan Coon
Attorney · Spanish Fork, UT · Member since 2025 · 77 posts · 97 votes
4mo
I want to second what many others have already stated: having an attorney or expert help set up this operating agreement is going to be crucial—especially where there are multiple partners and those partners are family.

Oftentimes, people tell me they don't need specialized drafting because they are working with family and "will just make it work." In my experience, it is actually those close family relationships where things can sour the most. A good Operating Agreement that provides specifics on decision-making, dispute resolution, and exit strategies should be drafted by an experienced attorney to prevent future heartache.

Regarding the mentions of LegalZoom: keep in mind that their documents are often bare-bones. A significant portion of the asset protection provided by an LLC actually comes from the language within the Operating Agreement itself. To be frank, LegalZoom often leaves a lot to be desired in that department.

A few critical tax points to consider:
- Active vs. Passive Income: With fix-and-flips, you are dealing with active income. This triggers not just ordinary income tax, but FICA (Self-Employment) tax.
- Dealer Status: Because the IRS views flippers as "dealers" (selling inventory rather than holding investments), it can create a massive wrinkle in your ability to use powerful tools like 1031 exchanges or cost segregation.
- Entity Selection: You may want to consider an LLC taxed as an S-Corp (or a C-Corp) to help mitigate active income taxes. More importantly, this helps quarantine that "dealer status" away from your long-term holds. If you already own rentals or plan to in the future, you do not want your "dealer" activity to taint your "investor" status on your long-term holds.
Definitely worth a deep dive with a RE-focused CPA and attorney before you file!
Note: This information is for educational and informational purposes only and does not constitute legal, tax, or financial advice. No attorney-client, fiduciary, or professional relationship is established through this communication.
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Basit SiddiqiBusiness Member
Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
4mo
I would have a conversation with your father and discuss a lot of the scenarios and what ifs

A) how much will each partner put in
B) Who can make decisions
C) When will the partnership liquidate
D) What happens if one person dies
E) Etc

Create a draft operating agreement and ask an attorney to review it.

best of luck
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