Help with setting up company structure to flip properties? LLC?

8 Replies

Hi all,

I'm looking to register an official entity to do business through. Should I do an LLC through Legal Zoom? How much should I spend on this?

I spoke with a local investor who has given me some advice and he has told me that I can do it online or even through a local RE Attorney for $200-300. I would be the sole owner of whatever entity I chose to go with but would look to partner with some private money on some of my deals. I did some research on BP about this topic but it's a bit all over the place for me, I'm seeing costs of upwards to $3000, that isn't what I was expecting at all.  What do you suggest?

And down the line if I want to get into rentals, should I form another entity to keep these businesses away from one another.

@Pierre Decoste

You don’t need to worry about LLCs for rentals until you start making decent money. You can’t get a regular mortgage with an LLC, only commercial loans.

If helps to have one for a flip because hard money usually wants to lend to an LLC instead of an individual person.

It doesn’t take long to setup an LLC and you want to make sure you are setting up the right structure for what you are doing. So, wait until you really need it and then consult with a professional.

@Christopher Phillips So would you suggest I find a local RE Attorney to set up the LLC. I'm looking to start out with Flipping. I just don't want to incur a big upfront cost.

Flips and rentals are taxed much differently so you definitely want to keep them separate.

You should consider a possible S Corp election for the entity flipping properties.

@Domonick S. I did not receive your PM, maybe you forgot to send it through. Thanks in advance.

@Brian Garrett That's exactly what I thought.

@Lance Lvovsky Yeah I've seen a couple rehabbers here mentioning using a S-Corp or even something called a series LLC. I took a business law class when in was in school in 2014 but can't say that I remember much lol What are some advantages to using an S-corp for flipping as opposed to an LLC?

@Pierre Decoste

it's still an LLC but the structure is setup to be taxed as an S-Corp. This is a better tax setup for flipping versus a regular LLC setup that would be used as a rental.

Rental income is taxed as passive income so it’s not taxed as capital gains. 

With flips, it’s taxed as regular income at your tax bracket, so most people will recommend using an s-Corp structure to minimize the taxes as much as possible.

So, you need to sit down with a accountant or a lawyer that can recommend the right structure before you do anything.

@Pierre Decoste

The cost of forming an LLC varies from state to state and your specific needs.

State XX may have a $100 fee to be submitted with their application
State XY may have a $200 fee to be submitted with their application

It also depends on what else in addition to the paper-work that you need that will add to the cost.

Do you need Legal Zoom or your attorney to draft up an operating agreement or to apply for a FEIN. This will all add up to your total costs.

Basit Siddiqi, CPA
917-280-8544

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