Partnering in Flipping. Contract or LLC?

[Christopher Lightner]

A friend of mine and I are trying to start flipping houses in our local area. We are each contributing 50% of the money and have already decided to split the profits 50/50 as long as the workloads seem remotely equal (read as a LOT of flexibility.) The question we keep coming back to though is what form of legal entity our real estate flipping enterprise should take, if it should take one at all. We have considered creating and signing a contract that states the expectations of both parties, but are not sure how real estate law effects our situation. While I am not expecting "legal advice" I would like to hear how others in this situation have gone about it in the past and how that course of action worked out for them as well as any suggestions and seasoned flippers may have.

[Jerry W.]

Hey @Christopher Lightner , I am not an expert but here are my thoughts. First I would definitely form a business entity. If you are doing flips, I would suggest a subchapter S corporation. It is my understanding you can pay yourself a salary for part and claim part as passive income, so you will have less self employment taxes. DO NOT DO A PLAIN PARTNERSHIP. You could also do an LLC. It has the advantage of being more flexible in the payout of profit and loss, as it can be done in different ratios than ownership. You could pay more salary to one shareholder than another in a sub S corp, but that is generally the only way I can think of at the moment to pay differently that ownership shares. You operating agreement or shareholder agreements can set out in detail how you divide income and split up work assignments. Definite consult your accountant on which entity is best for you. Either entity is easy and cheap to set up, but I would advise either reading up on the requirements or consult an attorney on how to maintain the corporate veil. Things like not comingling money and doing minutes of meetings etc. Good luck