What is your preferred LLC Structure for Fix & Flips?

Question

Hey! I'm a new investor looking to do my first fix and flip with my brother and I notice people going about it a few ways. My question to anyone who is experienced what is the best way to structure our LLC to complete our first fix & flip. I will have 1 potentially 2 partners and we plan to use hard money and the rest will be our combined funds. We want to ensure we set this up best to maximize any tax savings as well. Let know your thoughts.

Thanks,

Evan Polaski · Answer

@Damon M.You will need an attorney to draft your operating agreement stating how profits are handled, how losses are allocated, and who is responsible for what.  I.e. One of my flips was with a partner.  I put up 2/3 of equity, he put up 1/3.  He handled all project management.  As such, if we took a loss, losses were allocated 2/3, 1/3 like equity invested.  Profits were split 50/50, given he handled effectively all the day to day work.

This is just one way, based on my financial commitment and responsibilities versus partner's.  I have also seen them where a financial partner gets 10% annualized return or 30% of profit, whichever is greater.  This investor had no real say in the deal: a builder sourced it, performed all work, did all design, etc.  Investor just wrote a check to cover purchase and reimbursed for all labor and materials.

Deborah Wodell · Answer

Hi Damon,

Congrats on starting your first fix & flip! For your LLC structure, many investors use an LLC for each flip to separate liability and keep things clean financially. Having clear operating agreements with your partners is key to avoid any future headaches.

Since you’re using hard money plus your own funds, make sure your lender is clear on who’s on the LLC and how funds flow. For tax savings, consulting a real estate CPA can really help optimize your setup.

Aaron Zimmerman · Answer

I've seen investors structure fix and flips as a holding company with the two members and have each property flipped have its own LLC. Definitely speak with an attorney AND CPA to make sure you're totally aligned. The structure also depends on your objectives.

Fulton Sanchez · Answer

@Damon M., hi. Great question! I assist real estate investors across different states with entity structuring, tax strategy, and compliance—especially for fix & flips like yours. The way you structure your LLC can definitely impact both liability and tax outcomes, especially with partners and hard money involved. Happy to connect and share some insights based on what’s worked best for other clients in similar setups.

Ryan Coon · Answer

Hi @Damon M., congrats on getting started in real estate investing. When it comes to business and tax structuring for fix and flips there are several things to keep your eye on, especially as you expand you build out and expand your investment activities.

First, I would second the comments of others that having an entity (e.g. an LLC) where the operating documents (bylaws for a corporation or an operating agreement for an LLC) clearly outline the partner's respective rights and obligations, allocation of profits and losses, taxation, dispute resolution procedures, exit strategy, etc. Hire a good attorney to assist with this process.

Second, think about your long-term goals and discuss these with your partner's as these can effect how you want to structure from the outset. For instance, if you plan on partnering on several flips with the same partners then there may be good reason start out using a holding/parent LLC to serve as the partnership entity for any/all LLCs setup for individual flips as this can reduce the number of tax returns your filing every year and thereby make your tax filings more efficient.

Similarly, there may be good reason to consider S or C-corp taxation (can be a true corporation or simply an LLC taxed as a corporation) for a couple of reasons. First, this may be more tax efficient than simple partnership taxation because income from flipping is considered active income and thus is hit with both ordinary income taxes and FICA/self-employment taxes. Corporate taxation such as S or C can help you minimize your tax liability depending on your goals.

Second, if you plan an investing into long-term hold real estate, such as rentals, then corporate taxation on your flips has the huge added bonus of preventing you personally from being tagged by the IRS as a real estate dealer. In a nutshell, when you are engaging in frequent flipping and/or wholesaling real estate activities, the IRS can tag you as a Real Estate Dealer which can cause you to lose out and numerous very powerful tax tools available to your long-term hold investment real estate such as 1031 exchanges, cost segregations, etc. Doing your flipping and wholesaling activities through a corporation (which is a separate taxable entity from you personally) will prevent you from personally being tagged as a dealer thereby preserving these tax tools for you.

Note: This information is for
educational and informational purposes only and does not constitute legal,
tax, or financial advice. No attorney-client, fiduciary, or professional
relationship is established through this communication.

Michael Dumler · Answer

@Damon M., Since it's your first deal, I'd recommend forming a basic multi-member LLC with an operating agreement that clearly spells out each person's ownership, capital contributions, responsibilities, and how profits (or losses) will be divided. It doesn't have to be overly complicated, but you definitely want everything agreed upon in writing before money starts moving.Since you're planning to use hard money and some of your own funds, make sure you're clear about who's on the loan, how everyone gets repaid, and whether any partner receives a preferred return—especially if one of you is more passive.As far as taxes go, most individuals in your position keep it simple and structure the LLC as a pass-through entity (such as a partnership). That usually works fine for your first couple of flips. Once you achieve a higher volume, a CPA might suggest a more advanced setup, but wouldn't overcomplicate it just yet.

Damon M. · Answer

@Evan Polaski Thanks Evan!

Damon M. · Answer

@Deborah Wodell This is great info! Thanks

Damon M. · Answer

I would say both, this is our first.

Erik Estrada · Answer

Is this purely for tax advantages or are you looking to structure the LLC according to lending guidelines to help you obtain finnacing?

What is your preferred LLC Structure for Fix & Flips?

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