Different LLC for every flip?

14 Replies

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?

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. 

@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.

@Greg Dickerson thank you Greg. My CPA recommended this because one of his investors was sued after he had sold a property and they went after the company assets. Not sure why if FLORIDA is an "as is" state. But it was a recommendation in the event someone were to come after you, they'll go after only that LLC with that one transaction @Natalie Kolodij

@Charles Leon

From an asset protection point of view it is sound advice.

Now you could also reuse the same LLC a few times then close it. The end goal is to close all ties with past deal of the LLC. As everything else in the asset protection field you are the one making the cost analysis of what level of protection you want that will make you sleep better.

@Charles Leon

Also regarding FL remember that charging orders is not the sole remedy for single member LLC since Olmstead vs FTC.

But the example that your CPA pointed out was an inside liability problem anyway and having a multi member or WY holding LLC would not have helped on that case.

@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.

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


Originally posted by @Charles Leon :

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?

Sounds to me like you need a new CPA based on that advice. First off, why would he or she have you use an LLC for a flip and not an S-Corp? Second, for liability protection, only the assets inside the entity are at risk and with that, only the equity so if you have debt service on each of say 3 properties inside one entity, the only thing at risk is that total equity. Most of us flippers use leverage and strip the equity from the application of debt service. I think the advice above is poor. I have been flipping for over 10 years and have done many many deals over that span, completing them all using just a few entities and predominately with 2 - both of which S-Corps. This is not to say that every single person should be flipping in an S-Corp as that would not be accurate advice just as it is poor advice of others to suggest using an LLC for all your deals. Only your trusted and experienced CPA and tax advisor can tell you which entity is best for you in your specific situation.

 

@Will Barnard I completely agree. Just wanted some insight from someone that's been in the game longer. Also, all my LLC's are taxed like S Corps which prevents the double taxation. Thanks again for the reply as it has shed a lot of light.

@Charles Leon here are my 2¢: the idea of doing your flips in a legal entity is related to liability protection. [A trust usually doesn't offer liability protection, just a layer of anonymity.] If something happens during rehab [accident, fire, etc.], you can get sued and you'll be liable. With an LLC (and you can have it taxed as it suits you best that LLC) you have protection (if LLC was properly created and maintained). That is the reason why you want to do your flipping in an LLC.

If something happens after selling the house you held in an LLC (like the seller coming back because the walls crumbled) and you get sued, everything that you hold (like the other 3 flips you got going) in that LLC can be at risk (e.g. a judge can put a freeze on your LLC accounts and all your flips will get in trouble). That is the reason you might want to do each one in their own LLC and not reuse the old used one. Look into Series-LLC if available to you as a tool to mitigate the associated costs to easily create child LLCs when needed.

And if I'm not mistaken, if you close the LLC, the liability reverts to you. So it's better to leave them dormant for a few years, not to close them.

I'm not a lawyer, so take this like any other free advice from the internet. Consult with a specialist - @Scott Smith - to get expert advice. 

Originally posted by @Charles Leon :

@Will Barnard I completely agree. Just wanted some insight from someone that's been in the game longer. Also, all my LLC's are taxed like S Corps which prevents the double taxation. Thanks again for the reply as it has shed a lot of light.

That's good, and thanks for bringing that up as I failed to mention the fact that you can do an LLC with S Corp tax election thereby accomplishing the same thing as an S Corp.

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