Why we don’t use an LLC for flipping and do everything in our own name

Question

Sage wisdom from gurus always suggests having an LLC, but no one ever tells the negatives of using an llc

1. we often acquire properties via foreclosure auctions which come occupied.. when we go to court for eviction, you can indicate that you "intend" on living there and the court will tend to be less generous to letting the occupants stay longer. I I also removes the requirement to hire a lawyer if you have an LLC

2. many suppliers give discounts when an individual moves to a new home. I frequently receive 20% off coupons from the big box retailers

3. when it comes time to sell, many buyers real estate agents will do homework on the current owner before making an offer. Some will see when it is owned by an LLC will indicate to their buyers that this might be a low grade flip and put the fear of risk into them. This is avoided when it is in your individual name

Stuart Udis · Answer

@James McGovern You lie in court at eviction hearings and lie to supply houses? Most investors who are performing volume are getting contractor rates which far surpass any deal a homeowner is getting for one off purchases. Why would owning real estate through an LLC equate to being a low-grade flip? Not following the logic there. There are plenty of good arguments to own in an individual's name vs. LLC based on the individual's circumstances but have to say these are some of the weakest arguments I've seen.

Ashish Acharya · Answer

@James McGovern

Totally fair point, the right entity can be worth real money. I’ve seen profitable flippers save $50–60k+/yr by moving from “own name” to an S-Corp or LLC taxed as S-Corp once volume and margins justify it. The savings usually come from:

• Pay a reasonable salary (payroll taxes apply) and take the rest as distributions, no SE tax. On $400k net profit, shifting $250k to distributions can save you around $35k in payroll taxes alone.
• Reimbursing home-office, vehicle, phone and internet, per-diem travel, and health-related fringe benefits, where eligible often adds $15k in annual tax efficiency.
• Solo 401(k) from S-Corp wages can shelter $23k to $69k+ depending on age or profit, creating additional deferral/savings.

Rule of thumb:

• If net flip profit greater than 150k/yr, the admin hassle may outweigh savings, you will need to optimize insurance and stay in your name or simple LLC for now.
• If net flip profit less than $200 to 250k/yr or you’re scaling partners/crew, an S-Corp usually pencils, savings can exceed compliance costs by 5–10x.

James McGovern · Answer

@Stuart Udis not lying in court. I am the owner of property and don't have to hire a lawyer which is required if I was an llc

realtors will look to see who owns a property prior to taking buyers for visits and they will signal that right or wrong that houses owned by Llc are flips

Ken M. · Answer

So, it isn't only the successful completion of an act, it's the intent.

Brendan Winans · Answer

I've been a Realtor and an investor for almost 20 years. I don't make it a practice to look up an owner prior to showing a property, and don't know anyone who does. The only reason to do this would be to check the 90 day timeline. I can usually tell by the marketing photos whether or not corners were cut. If you cut corners on cosmetics, than you almost certainly cut corners on internal systems (how you do anything is how you'll do everything). I cannot imagine a realtor that has been in the game for any amount of time actually caring whether or not you hold title in your personal name or in the name of an entity. We care about whether or not it meets the needs/wants of our client.

Also, it's pretty clear what people think about the "intend to move in" tactic. "Move in" (occupy) does not mean spend the night. To willfully neglect the spirit of the law in order to manipulate a timeline for removing someone from their home would certainly keep me from getting a good night's rest... but maybe that's just me.

Russell Brazil · Answer

You just admitted to fraud in an open public forum.

Ken M. · Answer

I'm not the arbiter, but I think the judge would call 1 night insufficient. Most Due on Sale clauses state that you have to live there for the first year. Most calendars I've seen are more than 1 day long. And if you're not careful you run afoul of the IRS, which I think is a problem, too. I don't think it's enforced, but I never thought something like having two homes as a primary for tax purposes would ever be enforced.

But if you look at "New York Attorney General Letitia James is facing allegations of mortgage fraud" and "California Senator Adam Schiff is under a federal criminal investigation for alleged mortgage fraud, specifically concerning claims about the primary residence status of two properties"

You probably aren't as high profile as they are, but strange things are happening. Laws are starting to be enforced. Sometimes it isn't the act that gets people into trouble, it's the intent that does them in.

James McGovern · Answer

@Ken M. I make it a point to live in every flip at least one night as part of my final inspection process

Why we don’t use an LLC for flipping and do everything in our own name

Why we don’t use an LLC for flipping and do everything in our own name

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