Entity Structure for Flipping - Operating Company?

Question

I've had several attorneys and CPA's mention that house flippers should treat LLC's as disposable - that is, flip a set amount of houses with an LLC and then create another LLC and let the previous one dissolve.

The problem with this is that it's hard to build any sort of long term brand when the name of the company changes.

I've done a lot of reading on this site and others, and I'm wondering if an entity structure that involves an operating company would be the solution.

That way, you could have the operating company be the face of the brand, and then form as many LLC's as you need to actually hold the properties - all of them owned by the operating company.

Is this a viable option to build a long term company or is there a better, easier way?

I'm not exactly sure how the money is supposed to flow from the operating company to the other LLC's and vice-versa. I'm hoping to get some advice from attorneys, CPA's, or flippers who have experience with this.

BTW, I'm not a new guy who's stuck on the color of a logo and getting t-shirts printed, so save the "just go do a deal" comments, please :)

Matthew B. · Answer

Account Closed Do you have separate bank accounts for each property's LLC or do you write checks from the operating LLC's bank account? Is that a feature only available with series LLC's?

Joshua Fulenwider · Answer

I do a combination of both.  I utilize my operating company similarly to a property management company except, rather than do monthly disbursements, I disburse at year end to each property account.  It takes a lot of fine tuning for your accounting but once you set up your system it works pretty smoothly  That way I don't have multiple checkbooks and multiple accounts to balance.

Make sure not to hold any property in your operating LLC.  That's bad for legal reasons.

I have not used Series LLCs because I am not to the scale where they make sense yet.  It was just another resource you could explore.

Joshua Fulenwider · Answer

I think you are right on with the operating company.  I'm not a flipper but that is how I hold my rentals.  Each property has its own LLC and then for ease of management I have my operating entity interact with my property manager and the bank.

When getting loans you can have both entities co-borrow.  That way you establish a history with your operating company while the actual title to the property can be held in a separate LLC.

Some states have easier ways to set up multiple LLCs.  I believe the Delaware Series LLC structure is something that you may want to look into.

Matthew B. · Answer

The more I think about it, the more I think I'm right on this. I haven't gotten an answer from my accountant. Either he's busy because it's tax time or I need to get another one...

Matthew B. · Answer

I'm still trying to understand this structure as it pertains to flipping. So I'm thinking the operating company forms a holding LLC and says I'm gonna flip 20 houses with this one before letting it dissolve. Then operating company funds the holding LLC with enough to purchase properties and renovate them. At this point you have two companies to keep track of, two sets of books, two bank accounts, etc. Then, after 20 flips, operating company dissolves holding LLC and forms another, starting the process again. Meanwhile, operating company is the face of the brand and one paying me (the owner) a salary.

Thoughts???

Teri Feeney Styers · Answer

I use my S-corp for all my flips. One bank account. One owner. Per advice of my CPA who specializes in investment properties. That said, I don't have any financial partners - if I did, I would create an LLC in which my corporation was part owner...