Hello, I have a question regarding entities and how to structure a entity. I've talked to a attorney about this already, but have not been able to get a straight answer.
We're doing about 40 rehabs a year and 20 new construction homes a year and would like to know if you think we should keep everything under one company umbrella or separate them. Right now, we've been operating under one corporation, but as you know, the flipping and new construction are two totally different animals. Any advice would be greatly appreciated.
Congrats on building a sustainable real estate enterprise. Thats some impressive volume.
When I was operating a development company the structure we used was bifurcated. We operated the construction side of the business through a corporation, and held properties in single asset LLC's.
The logic behind this structure was to limit liability in the short term and also the long term. We were working on developing small building business parks throughout California, and the single LLC allowed us to have different equity partners in individual deals.
Through operating agreements the LLC's hired the corporation to oversee and complete construction, for a fee, and the LLC's structured a capital stack that allowed for a development fee that was passed onto the corporation while retaining liability for the asset being financed through a construction loan.
The corporation then contracted for work performed on the project from various professionals and the GC's.
In your case I think it all depends on how you finance your projects. You didn't mention that aspect so its hard to determine what structure would work best for you. There are some really good real estate attorneys who do considerable work with real estate developers that might be able to offer you some really valuable advise as to the best structure to meet your needs. I would also encourage you to equally seek out a good accounting firm that also does considerable work with real estate developers. A good accountant is worth its weight in gold when it comes to development.
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