How should I structure business for my first flip?

6 Replies

Hi everyone, I have a question about a simple deal structure for a fix n flip. A family member has agreed to fund a flip for myself and another partner. We will split the profits equally 3 ways. We will use my LLC as the business entity and the funds will come from a HELOC. I am the only member of the LLC.


How should a deal like this be structured and how should the profits be distributed? Should I have the LLC borrow the funds from the family member and secure it with a promissory note and deed? The LLC could then pay the loan back with a profit share after we sell.

Or...do I need to have a JV agreement between the 3 of us? Or both?

What about my other partner? Do I need to 1099 him when I pay him his share of the profit? I will of course consult my tax advisor and attorney, but I'd like to hear all your thoughts as well.

Any insight on how to best work this is much appreciated. This is my first deal. We close on it in a couple weeks and I'm fired up!!

Thanks a bunch!!

I wouldn't want to 1099 as a partner on this. I would end up paying a lot in taxes since I couldn't deduct as much as the LLC.

One possibility would be starting a new LLC of which you have three owners or stock holders each owning 33%. That way you all get the same deductions, and its the net income that is split up equally three ways.

Yes, that makes sense. Thanks Steven.

Can anyone suggest a way to make it work well without forming a new entity? I'd rather just use the one I already have if possible.

Originally posted by @Jake Silcott :
Yes, that makes sense. Thanks Steven.

Can anyone suggest a way to make it work well without forming a new entity? I'd rather just use the one I already have if possible.

A simple JV agreement and fill out a partnership return. Your LLC can be a member. The income and Expenses and property belong to the partnership and the net profit is passed through to each of the three partners.

Thanks @Steven Hamilton II It seems that we would then need a good insurance policy to go along with the partnership, since we wouldn't be getting the liability protection provided by an LLC. Is that correct?

When you say "fill out a partnership return", are you referring to our income taxes?

Thanks a bunch for the insight guys!

Originally posted by @Jake Silcott :
Thanks @Steven Hamilton II It seems that we would then need a good insurance policy to go along with the partnership, since we wouldn't be getting the liability protection provided by an LLC. Is that correct?

When you say "fill out a partnership return", are you referring to our income taxes?

Thanks a bunch for the insight guys!

Yes, partnership tax return. To keep things clean and simple

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