Should You Dissolve an LLC after a Sale?

[Kevin O'Donnell]

I'm getting a few different point of view on this from equally qualified and experienced house flippers. 

Here's the scenario: you purchase a house using 123 Main St, LLC. You fix up the house. You sell it to an owner-occupier. All good.

But what happens to 123 Main St, LLC?

Can you purchase another would-be fix and flip with it?

Can you use it to do an LLC purchase wholesale deal?

Can you use it to do a buy and hold deal?

Can you use it to start that super cool social media marketing company you always dreamed of?

I always thought you should dissolve that LLC immediately. Because if there is a legal issue which arises between 123 Main St, LLC the new owners of the actual house at 123 Main St (or contractors, buyer agents, etc) that last thing you'd want is new real estate owned by 123 Main St, LLC. Because it would put that new real estate at risk, right?

Looking forward to hearing your thoughts!

[Scott Smith]

Hey @Kevin O'Donnell

You can continue using the LLC as you move forward, but the issue is that you still have the liability attached to it for the times it was the owner of the previous property. So, in this case, you would essentially be placing a new flip into an LLC that now has liability for the current property and the liability from the one you handed off. So while you can continue using the LLC for future properties, it can defeat some of the purpose of the LLC in that you are attaching liability from different properties to the one you currently have in the LLC.

Many investors who work through fix and flips have found the Series LLC to be the idea entity for this type of issue. You can check out this article for more. The Series LLC works in a partent-child function. You establish the "parent" Series LLC, and once it is formed you can create unlimited "child" series. Many flippers will create a "child" series for each investment. The best part of this is that you can create a "child" series from your computer at home, it doesn't require to forma brand new LLC for each property, while still offering the liability protection you are looking for.

I set up entities like this all the time, so if you have questions about it feel free to ask! Just wanted to  throw a strategy I have seen that works for both individuals scaling up quickly or doing lots of flips.

This is not legal advice, just my opinion as a real estate investor.