Do I need an LLC for a fix and flip?

4 Replies

Currently under contract on my first flip in Denver, CO. We are set to close this coming Thursday and as os now, the property will be in my name. I'm trying to figure out if it's worth getting LLC for this project. I know it's a relatively simple and inexpensive process to get an LLC, but won't the homeowners insurance that I get for the duration of the project cover me?

Thanks in advance for the help!

Originally posted by @Jesse Dickens :

Currently under contract on my first flip in Denver, CO. We are set to close this coming Thursday and as os now, the property will be in my name. I'm trying to figure out if it's worth getting LLC for this project. I know it's a relatively simple and inexpensive process to get an LLC, but won't the homeowners insurance that I get for the duration of the project cover me?

Thanks in advance for the help!

Talk to your insurance agent. You need special insurance if you aren't going to live in the house.

Generally, people set up an LLC for either tax planning or legal protection. Real estate in general already has tax advantages so putting it an LLC provides little to no additional tax advantage. However, if you are doing multiple flips a year, you could be considered a "dealer" and may be subject to Self Employment tax (Social Security and Medicare tax about 15%) on your profits. If that is the case, I recommend forming an LLC and choice to be taxed as an S-Corp.

An LLC can provide legal protection if you were to get sued. A flip has less risk then a rental. If this is a one time deal, I would save the expense and make sure you have a solid insurance policy on the house. And I would highly recommend you get an umbrella policy personally. If you intend to do multiple flips I would look into an LLC. See if your state allows Series LLCs. That allows you to have one LLC for multiple properties as opposed to forming a separate LLC for each property.

Wish you well!

Tax wise it can be a benefit. 

Flipping is ordinary income subject to self employment taxes. 

We can potentially save on those with an S election, which is an add on to an LLC.

So if you do the deal in the LLC and make a ton - we can always look at changing it to an S corp later.

If you do it in your name and make a ton- we can not.