Different LLC for every flip?

Question

I’ve been doing fix and flips for a few years but I had my CPA tell me I should open a different LLC for every property then close it when the property has sold. Thoughts?

Natalie Kolodij · Answer

That sounds like overkill.

Also, there's no tax benefit to that- so it sounds like your CPA is providing you with legal advice, which he shouldn't be doing.

Greg Dickerson · Answer

@Charles Leon I agree with @Natalie Kolodij if you are flipping you want to use an operating company. Maybe Natalie can advise you on the entity structure best for your situation.

If you are holding long term then it’s best to hold each property in a separate LLC for liability reasons so the one will not affect the whole. This should be a discussion with your attorney of course but that’s the general consensus when holding long term.

Will Barnard · Answer

Thanks for the kind words Shawn. Perhaps we can arrange for your to visit one of my sites in the flesh sometime.

Shawn Regnier · Answer

@Will Barnard Thanks for the candid response, Will. I've checked out many of your previous deals since you're located very close to my area, and am always a big fan of reading your posts here, ever since I heard you on the BP Podcast #130.

I still have your hand written "ten top tips" for flipping list kicking around here, someplace.

Will Barnard · Answer

Yes, but no. I have not been classified by the IRS as a dealer but it is NOT because I use one company as manager of another. I do not flip a large quantity of deals, just high value numbers. My 3-5 flips per year amount to $5-10M in closed deals at exit whereas many others I see on BP who talk about doing 30 flips per year of homes valued at $100k amount to less. Many of my deals are also held for over 1 year, however, note that intent plays a large role not just timeframe. My other entity I have held is used for the real estate sales and consulting side where the other is used to hold and flip the asset. A third is my construction company and others are single use entities formed for 1 specific investment.

Each individual situation is different so I highly recommend one speak to their CPA for advice on what is best for their situation.

Manuel Baltodano · Answer

Here’s an interesting and true scenario in Florida;

You have 3 houses to flip this year.

You buy #4, it was cheap because it has code enforcement liens because it needs some rehab.The municipality or county file a Cross attaching lien on this property with your name on it or update the old one with a new one recording.

You now have a lien on all your Properties.

Seems like a bit of overkill but I think there are some properties your just better off and safer in holding in a New LLC to avoid liability. I have and it was the smart way to go because of future implications but these properties are few and far in between.

-Manny

Mike S. · Answer

@Charles Leon

Last but not least, in FL we have great Land Trust statutes that offers also some asset protection. I would suggest that you look into incorporating Land Trust in your flip workflow. Once you invest time to learn how to do them they cost nothing to use. A good starting point is the ‘Landtrust in Florida’ book from Mark Warda.

Tanner Sherman · Answer

If you live in a state that is $100 online to start an LLC and you sleep better at night knowing that your assets are protected then that's your call. I personally don't see any benefit to doing that, and would only even open a second LLC after 3 or 4 rentals are in the same one. You'd be find just having one LLC and a good umbrella insurance policy for CYA. There wouldn't be any tax benefit to doing it like this.

Shawn Regnier · Answer

@Will Barnard Using primarily your two entities for most of your many deals over the last 10 years, were you able to avoid "dealer" status by using one of them as your managing corp?

Manuel Baltodano · Answer

For anyone else, reading some time in the future. LLC can be taxed as an S Corp.

My tale is a true account and as said by others too great advice usually comes from a Great Attorney and CPA who specifically advises on the situation. Not always though, caveat.

My advice at least, comes from buying and flipping with cash, no financing in your market South Florida.Buying at auction is risky, add to it also the risk of unrecorded liens, improperly served parties, bad lawyer work and you have to limit liability. a continuation of Chapter 162 lien on one of your properties will stop the sale of another or delay by not being able to close on a deal because now title insurer won’t insure because your name or entity has been liened, for example.I have clients that buy only in their personal names and it works for them. Each case is specific, good team helps learning what to do in each case.

-Manny

Different LLC for every flip?

Most Popular Reply