Best business structure for SFH Flipping in TX

Rental Property Investor · Crozet, VA · Member since 2016 · 44 posts · 31 votes

Dear BP Community,

I am looking for some advice on the best business structure for a Property Flipping business soon to be established in Texas. I am reasonably new to the US real estate market and thus would appreciate some expert advice w.r.t the best tax structure, liability protection and generally which structure is more suitable, S-Corp, L.L.C, Series L.L.C, other. This will basically be a one man show (me) so no issues with partners or multiple shareholders etc.

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Rich Senyszyn

Member since 2018 · 46 posts · 43 votes

I'm in Texas. LLC is the easiest to manage and one gets all the necessary advantages. I'm a small owner. However, nothing will save you from the property taxes here.

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Rich Senyszyn
Member since 2018 · 46 posts · 43 votes
8y
I'm in Texas. LLC is the easiest to manage and one gets all the necessary advantages. I'm a small owner. However, nothing will save you from the property taxes here.
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Brian M Sweeney
MBA, CFP®, EA · Columbus, OH · Member since 2018 · 175 posts · 207 votes
8y
@Ian Middleton LLC is the most common for flippers. Are you going to be having partners? Investors?
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Vijaianand Thirunageswaram
Real Estate Broker/Owner & Property Manager · Sugar Land, TX · Member since 2013 · 660 posts · 459 votes
8y
@Ian Middleton I have an LLC(Om Realty Properties LLC) for my flip investments separate from my rentals which is owned in our name with Umbrella on them. Usually LLC works easy and best.
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Michael PlaksPro Member
Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
8y
@Ian Middleton
Attend the biggest networking event in Houston next Wednesday, Sept 19, and you will meet hundreds of local investors, along with vendors.
It's a loaded question, but here is the short answer:
1. For legal liability protection, if you need one, is an LLC. Asset protection is a hotly debated topic, and attorneys have zero consensus.
2. Series LLC only makes sense when you have multiple properties or multiple businesses. Even then, there's an ongoing debate about the benefits (or lack thereof) of Series LLCs.
3. Once your flipping becomes substantially profitable - as in $50k net after all expenses - then an LLC with an election to be taxed as an S-corp should be considered for tax reasons. At lower profit levels, there're minimal or no tax benefits.
4. If you're married, an LLC filing a partnership return may be the best option.
5. It is acceptable to not have any business entity when you start, as long as legal liability is addressed with insurance. This is not legal advice, as I'm not an attorney, and an attorney is likely to disagree.
Each item from my list is easily a 15-min discussion.
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Ashish AcharyaBusiness Member
CPA, CFP®, PFS · Sarasota, FL · Member since 2017 · 5k+ posts · 3k+ votes
8y
Originally posted by @Ian Middleton:
Dear BP Community,
I am looking for some advice on the best business structure for a Property Flipping business soon to be established in Texas. I am reasonably new to the US real estate market and thus would appreciate some expert advice w.r.t the best tax structure, liability protection and generally which structure is more suitable, S-Corp, L.L.C, Series L.L.C, other. This will basically be a one man show (me) so no issues with partners or multiple shareholders etc.
I agree with @Michael Plaks ,
The best structure for Flipping will be S-corp. Although you need to have at least 50-60k in profit, sometimes you dont need that much and still get benefits. Your individual situation has to be evaluated.
To get started, you could create an LLC, and maybe once you are doing more flips, you can elect S-corp next year. You have the option to convert your LLC to S-corp each year. So, starting with LLC and testing your performance would be good before electing S-corp because S-corp comes with little administrative tasks such as payroll and its own tax returns.
As you start investing in Buy and Holds, you would set another LLCs to manage Rentals. Rentals work best with LLC compared to S-crop.
Also, Series LLC will be better for Buy and holds. As flip property turn over every few months, you dont need Seriecs LLC for flips, generally.
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Ian Middleton
OP
Rental Property Investor · Crozet, VA · Member since 2016 · 44 posts · 31 votes
8y
Thanks for the feedback, it is much appreciated. I think from the above i will start with the LLC route and see how it goes from there. Also seems like a smart idea to meet with some professionals in this field early next year (closer to the time of getting things going) and get some specific advice based on the complete picture. I do see that there are quite a few variables to the equation that should be taken into account, so again my thanks for making me aware of these.
The general plan is to try and get through 4-6 flips per year with (hopefully) a profit of around 20k each giving a projected profit of say 100k per year - (all talk at this stage).
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Vijaianand Thirunageswaram
Real Estate Broker/Owner & Property Manager · Sugar Land, TX · Member since 2013 · 660 posts · 459 votes
8y
@Ian Middleton I like your dream and realizing the dream and making it happen is going to be lot of work. Doing 4-6 flips a year might be very easy for many if you are planning to do it full time. But if you are planning to do as part time projects, I would request you to be expect lots of road blocks and dips along the way. Don't mistake me and I am not trying to put you down. I am travelling that road and I know how it goes. First of all, it's hard to find a deal to make it work for the flip.
Even if you find the deal, it's hard to get right contractors. If you don't get the right one, he screws up the project and you are set to fail on it. We have done 4 successful flips and now at the 5th one on the market. Got stuck with bad contractor and screwed the project and property is in the market for more days than I expected.
Every part of flip is important and gotta to plan and execute. With 4 flips I took it easy that it won't be big deal but it is big deal and every project is different.
Just want to caution you to be ready for realistic world!!
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Ian Middleton
OP
Rental Property Investor · Crozet, VA · Member since 2016 · 44 posts · 31 votes
8y
Originally posted by @Vijaianand Thirunageswaram:

@Ian Middleton I like your dream and realizing the dream and making it happen is going to be lot of work. Doing 4-6 flips a year might be very easy for many if you are planning to do it full time. But if you are planning to do as part time projects, I would request you to be expect lots of road blocks and dips along the way. Don't mistake me and I am not trying to put you down. I am travelling that road and I know how it goes. First of all, it's hard to find a deal to make it work for the flip.
Even if you find the deal, it's hard to get right contractors. If you don't get the right one, he screws up the project and you are set to fail on it. We have done 4 successful flips and now at the 5th one on the market. Got stuck with bad contractor and screwed the project and property is in the market for more days than I expected.
Every part of flip is important and gotta to plan and execute. With 4 flips I took it easy that it won't be big deal but it is big deal and every project is different.
Just want to caution you to be ready for realistic world!!
Hi Vijal, Yes I think you are right that the flipping business is no easy road. From my (extensive) research and long list of books on the topic I anticipate many problems which will just have to be addressed as they come up. From where i stand I see the biggest challenge is finding deals which seems to be in scarce supply in todays market - i guess i will just have to work the channels like everyone else.
Luckily I will be doing this on a full time basis and the many years of project management experience in Oil and gas Services contracting should be of some help. We can talk again in a year when some of my enthusiasm has been tempered, but for the time-being its all systems go.
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