Entity structure for doing wholesale, rehab flips, and rentals

[Bob Yon]

I've searched the forums and have not found exactly what I am looking for though I don't think my situation is all that unique.

I have been investing for some time now and have acquired several rental properties.  I have also done some rehabs that I sold, some with owner financing and, I have done some wholesaling (just flipping to other investors properties that I have found through my marketing but did not want to add to my own portfolio at the time).  I plan to continue doing all of the above.

My overarching goal is to build a passive income so that eventually I can quit my corporate job which is as an independent computer consultant. This work is done though my Single member LLC, taxed as as S-corp.

My CPA says to just run my real estate transactions through my Consulting LLC.

However, I also had a local mentor/coach tell me that I needed an entity structure that is much more complex but that I need to separate my rental hold properties in an entity separate from my flipping and wholesaling properties. Basically anything I hold longer than 1 year should go in one entity and anything held for less than 1 year in a different entity. And, that these should be multiple members LLC, not Single member LLC so that therefore I have charging order protection.

They also recommended that I set up an LLC taxed as a C-corp that would provide marketing services to the other entities. Somehow this provides some special tax advantages including being able to deduct medical expenses, rent my home to the corp for business meetings tax free, etc. And that I could avoid the dreaded C-corp double taxation by keeping business profits at or near zero for the year in this entity. This mentor/coach group uses some very aggressive tax strategies.

When I mentioned this approach to my CPA he dismissed it almost immediately without much consideration at all saying it was too complex and expensive to maintain.

Like anybody else I want to pay as little tax as possible but if my CPA does not buy into (or understand) the strategy is it really any good to me?  Preferably I'd like to spend less time each year maintaining entities than it took to write this post.

Any and all informed suggestions and advice are welcomed.

[Brandon Hall]

@Bob Yon 

I've never heard of the exact strategy you are speaking of but it is intriguing and I will certainly look into it. Can you provide any more detail?

I disagree with your CPA in that you should use your Consulting LLC to hold rentals and also flip houses. I agree with the comments in that you should separate these different businesses into different entities. The sole purpose is to protect one from the other. If a contractor on your flip is seriously injured, you will want the peace of mind that your "buy-and-hold" properties are protected.

That being said, you don't really need to put your buy-and-hold properties into an LLC. It's often cheaper and less of a hassle to just purchase an umbrella insurance policy.

If you really want that added layer of protection, consider opening up a property management LLC instead of putting your buy-and-hold rentals into a LLC. You would then run all property management activities through the LLC like signing leases, contracting repairs, etc. In theory, if a tenant tried to sue you, they would likely only be able to sue the property management LLC and your buy-and-hold properties would be protected.