Scalable Business Planning

[Joseph Wojciechowski]

I am an investor located in Michigan and in the process of developing a business plan but am struggling to figure out how to set up my LLCs with scalability in mind. Below is a rough outline for both a buy/hold and flipping business. I understand a parent/holding company is the next level of protection when you have multiple LLC's. Should my parent company hold all of my real estate LLC's even if they are taxed differently (such as between the buy/hold and flip business) or are parent LLCs designed to only protect the several Buy/Hold LLC's because they are of similar taxation? I know I am overthinking this too much for the current stage as an investor, but I'm trying to work backwards from my end goal of owning 100 units.

LLC #1 (convert to s-corp once turning a 40K/yr profit as recommended by CPA) for a flipping business.

LLC#2,3,4+ for Buy/Hold business (opening up new LLC after the previous reaches 1M in equity or property is in a new state)

Parent/Holding Company - to own all LLCs or just multiple Buy/Hold LLCs as they are formed?

Property Management business- created after acquiring about 20 properties. Can this business also be shielded by the parent/holding company?

On a separate note, if my personal home and all my business is in the state of Michigan at this point, would there be any benefit to designing the business as a series outline or simply a parent/child LLC set up where the parent LLC would be created in a more tax advantaged state such as TX, WY, NV etc? I plan to grow the business to multiple states in the next 5-10 years with the 100-unit portfolio goal at 20 years.

[Michael Smythe]

@Joseph Wojciechowski you're reading too many "scary" articles!

First issue is an investor always has a choice for liability protection: 

Insurance vs LLC setup

If you have enough insurance, you can cover any lawsuit!

Second, when doing flips you'll typically put each property in its own LLC.

If you plan to scale rentals, you can have a Management LLC that acts as a PMC collecting rents and paying expenses via its bank accounts. Then you could have each rental in a Property LLC that hires the Management LLC for management. Annually, the Management LLC would "distribute" to the Property LLCs, but it would all flow thru to your 1040 Schedule E - unless you get partners, which would require a 1065 return with K-1 distributions to the partners.