Hey I was wondering what people's thoughts were on flipping houses under one LLC. I know in rentals most people set up a separate LLC for each property to minimize liability, but for flipping houses, since it's so short term would it be okay to just use one LLC?
You should speak with a tax advisor. If you're only flipping houses, you should probably do so through a single S Corp.
Yeah I'm creating an LLC taxed as an S Corp, I'm asking from more of a liability standpoint in this case.
But you would say doing it through a single entity would be fine as opposed to creating a separate one for each deal?
Creating an LLC taxed as an S-corporation for each property would be quite costly(depending on how many flips you do in a year).
A) If the property is in CA or if CA deems you do be doing business in CA - CA will charge a minimum tax of $800
B) You would need to pay a fee to register and dissolve each CA LLC
C) you would need to pay a fee to your accountant to elect the entity to be taxed as an S-corp.
D) you would need to pay $500+ for each S-corp tax return to your accountant
With that said it depends on what your exposure is for liability purposes to see if it is worth it to have multiple LLC's.
If you have 5 fix and flip projects going on at once and a contractor sues you for whatever reason - are all 5 fix and flips exposed?
If you are doing one at a time - I dont see anything wrong with doing it all under one LLC(taxed as an S-corp); however, I am not a lawyer and you may want to confirm with one.
Make sure you get a lot of insurance too.
@Basit Thanks for the input, yeah that’s exactly why I was hesitant to create a separate entity for each property. I’m definitely leaning more towards using a single entity for flipping I just wanted to hear some other opinions on it.
@Jo-Ann Lapin What type of insurance is available for flipping?
I am not an insurance agent Foremost allows for a flip to be fully insurred past 30 days when properties are vacant. Make sure it covers vandilsim.
@Zander Dragony You can go for S Corp, why go to a sub-par LLC when you can do a full corp with better laws (in my opinion), in a liability standpoint, it is how much asset is in an entity, i’d say protect with one every 2-3M assets. So if you’re flipping 20 100k cash exposures (say 400k arv) then go make one entity for that. But then again, there are too many companies out there who are building tons of buildings with just a single entity. It makes your books stronger and cleaner. Courts in CA have pierced corporate veils many times, especially if it is llc vs tenants (in my case, employees), I don’t even see the need of an llc unless you net worth at least 500k.
@Manolo D. Thanks for the input, I'll definitely take that into consideration.