LLC or LLP when partnering on a cash deal?

Question

I’m buying a property with a friend. We are paying cash and are going to rehab it. Once the rehab is done we plan to rent it out and refinance it to pull our cash back out.

My partner and I are splitting the deal 5050. We are both experienced real estate investors with different areas of expertise. He is a flipper where I am a more experienced landlord and buy and hold investor. We are both looking to learn from one another in the deal and make some money at the same time.

My question is should I set up an LLC or an LLP for the purchase? And can my existing LLC be the half owner of that new LLP or LLC?

Thanks for the help!!

Sean Morrison · Answer

Disclaimer: I am an attorney, but I am not your attorney. This is not legal advice, just friendly information.

The primary difference is liability protection. The LLC protects the members from each other, and from the business' liabilities (and the business from their personal liabilities). The LLP protects the members from each other, but they may still be individually liable (this is actually state specific. Some states allow for full liability protection like an LLC. Other states don't recognize LLPs at all). Frankly, all states recognize LLCs and they are much more flexible in terms of how they can be managed and how they can be taxed, and are much clearer in their liability protections.

Ashish Acharya · Answer

Can't give you legal advice but from a taxation perspective:

There is no tax impact: LLC vs LLP.

Yes, your existing LLC can be a partner in the new LLC between you and your friend. If your LLC is Multimember and your new LLC with your friend will ever be an S-Corp, you cant have your MMLLC be the owner of S-Corp. Might not be applicable to you but wanted to point it out.

LLC or LLP when partnering on a cash deal?

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