Holding flips vs rentals- best entity setup?

Question

Looking to see if anyone has some entity structure advice for my situation. I currently own an scorp that holds all of my fix and flip projects (this comes out to about 20ish flips per year). I have a couple properties right now that my scorp owns and completed a renovation on, but now I’d like to keep them as rentals instead of sell.

I know I need to keep the long term holds separate from the scorp flips but wanted to know what’s the best entity to set up for holding the rentals? Should it be a sub entity of my scorp or completed separate? And how do I go about transferring the properties out of the scorp into whatever new entity I set up to hold the rentals?

Any insight is much appreciated!

Dominique Gunderson · Answer

@Sean O'Keefe thanks for the insights! I've seen your responses on several threads on here, do you do paid consultation sessions for people to basically pick you brain on certain business specific questions they have? I am looking to do that with someone who is a tax expert with real estate investors.

Konstantin Ginzburg · Answer

@Dominique Gunderson

I have kept my buy and hold properties under an LLC. I was initially purchasing properties under my personal name and transferring them with an articles of transfer that my title company's lawyer drafted for me. I am not a legal expert but you may be able to do something similar to transfer your properties to a different entity.

Sean O'Keefe · Answer

@Dominique Gunderson no worries, happy to help. There are 20 or so Real Estate CPAs in this forum. Most will offer some form of free initial consultation and I do as well :)

AJ Exner · Answer

I have found with my clients that LLCs provide the best bang for the buck. Easy to set up, flexibility in adding/removing members for what might be needed for a particular deal, and obviously the added legal protections and liabilities based on where it is created or the foreign entity filing.

There are some lenders that would still lend to your scorp, but the option of batching investments under a single LLC, or even an LLC for each property, is what I see most lenders prefer to work with.

As for your current properties, refinancing them out of the scorp into an LLC is very doable, a couple of additional hoops, but very doable as either a cash out or a rate and term refinance.

Hope this helps!

Sean O'Keefe · Answer

@Dominique Gunderson Generally, flips in S-Corp and rentals you plan to hold should be in LLC.

*This post does not create a CPA-client relationship.  The information contained in this post is not to be relied upon.  Readers are advised to seek professional advice.