Should I flip a property in my own name or start an LLC?

Question

I'm new to investors and plan on doing my first deal in Q1 of 2020. I'm going after a flip and likely will partner up with a brother of mine to share the work and down payment, and we'll be funding the rest of the deal with hard money.

Do experienced investors recommend we start an LLC for this? Or just do it in our names?

J Scott · Answer

There are three people you should consult in order to make this decision:

1. Attorney. A good attorney, either real estate or asset protection, will let you know the best way to protect your assets and minimize liability risk.

2. Accountant/Tax Professional. A great accountant or tax professional who is well-versed in real estate can help you figure out the best entity in order to minimize your tax burden given your overall financial situation.

3. Your Lender. If you'll be getting financing for your properties, your lender will likely have a preference for whether those properties are held in your personal name or in an LLC. Talking to your lender up front will help you ensure that you purchase the properties in a way that will make lending most efficient.

Ideally, these three team members will be able to coordinate the best solution for you.

Natalie Kolodij · Answer

LLC

If you make over $70k and an S corp may make sense to save money- we can always add that to an LLC later.

If you don't end up making that much needing it, a single member LLC is just ignored by the IRS so no changes at all in your tax filing.

Will Barnard · Answer

Things to consider and make sure you discuss/consult with your team members J Scott mentioned.

1. What personal assets do you have to protect?

2. How much risk/equity exposure are you comfortable with?

3. Will you have a partner or no partner.4. What is your current tax bracket and how will the potential income from this first project affect that?

4. Will you be getting a bank loan, private money loan, hard money loan, or seller financing?

5. What liability and hazard insurance will you be getting and with what limits?

There are literally hundreds of posts with this very question on BP as well for you to read but keep in mind much of the answers are opinions not from tax professionals so again, consult your own team members for true clarity and proper instruction. Generally speaking, for flipping, S Corps or LLC’s with S Corp tax elections are best for flipping, while LLC’s best for buy and hold long term. Again, that is generally speaking as each individual investor situation is different.

Robert Muzyka · Answer

Thank you @J Scott and @Natalie Kolodij

Should I flip a property in my own name or start an LLC?

Should I flip a property in my own name or start an LLC?

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