Should I form an LLC for my rental that became a flip?

6 Replies

I have 2 rental properties in Rock Hill, SC and bought a third one last month planning on keeping it as a rental. Turns out that I found out that I can make a $60K+ profit if I flip it. 

I bought in my personal name. Since I was only planning on forming an LLC after my 4th rental.

Should I go ahead and form 2 LLCs? One for the flipping business and one for the Rentals?

Can anybody recommend a good real state friendly CPA in the Charlotte, NC area?

Thanks,

Paulus

I don't know a real estate CPA, but my best friend who is an attorney for dentistry practices that buy and sell, often gives me advice. 

If you plan to make over 50k with flipping, then go with an S-Corp so you can do dividends and save a few thousand on taxes. 

If you plan to make less than that, then just do an LLC because it's easier.

I would recommend you do a separate LLC for rentals than another business. If a tenant breaks a leg on the stairs of your rental due to negligence, they would be able to sue whatever entity owns the house. If this is you, then you lose all your personal belongings. If this is an LLC or S-Corp, it limits it to the belongings of that LLC's business and not sure how the real estate plays a factor in "belongings".

There are some more considerations at play here than the tax treatment, although an important part of the equation. Generally speaking, an LLC can elect to be an S Corp, the two are not mutually exclusive. Some other considerations you may want to take into consideration is how much time and effort you want to place into the management of your LLC. LLCs offer great protection from liability for rentals, but require significant amounts of reporting and upkeep. This could eat into your profit margins. It is ultimately up to you, after consulting with a local attorney licensed to practice in your state, to decide the best style of incorporation for your work. There are more options than LLC as well out there to consider. Food for thought.

Hey guys just want to say I have owned apartment buildings for the past 30 years and none of them is in a LLC or S corp. We have had fires, tenant death, tenant injuries, dog bites all taken care of by the liability insurance on each property. My personal residence is in my wife's name and the buildings are in my name. I don't see any use for LLC or S corp, it seems they are double taxing you, the corporate tax and personal income tax. Just my opinion.

I have an S-Corp for my tape business. Huge savings on taxes. As I get closer to retirement I will switch to a LLC.

I have yet to create a real estate business. I do plan on filing for a S-Corp. 

Keep in mind that you have to apply for an S-Corp and it's not guaranteed you will get one.