One LLC, or one for rentals and one for flipping?

[Matt Motil]

I have searched for a while before posing this question, but couldn't find exactly what I was looking for.

I recently put my latest flipping project under contract and have been going back and forth on whether to keep and perform the flip under my current LLC (which has all my rentals) or start a new LLC for flipping. I'd like to hear the pro's and con's from the experienced BP nation on why I should or shouldn't do this. Our business plan is to ramp up the flipping for 2016 to do about 6 next year.

A few things that I have thought about already: 

Pros: 

Asset protection for my rentals during renovations and immediately after sale of flip. 

Separation of rental operations and flipping operations where LLC could get labeled a dealer and put future sales of long-term holds at risk for higher taxes

Cons: 

Multiple paperwork, maintenance fees, bank accounts, tax returns, accounting records for having multiple LLC's

I'm interested in the thoughts behind doing one way versus the other. 

[Brandon Hall]

@Matt Motil from a tax perspective, it makes the most sense to separate the businesses. If you have a great year flipping houses, you'll likely want that entity taxed as an S-Corp. If rentals get tied up in that S-Corp, you'll have tax problems - mainly the fact that you can't get the rentals out of the S-Corp without creating a taxable transaction, even if you want to move the property back into your own name. 

On top of that, if classified as a dealer, you may subject your rental portfolio to the dealer status if they are also under the same entity. Now, "intent" is evaluated at the property level, but there have been instances where "flipping intent" bleeds over to rentals under the same entity. The burden will then be on you to prove that the rentals are maintained with "investment intent" - not fun. 

From a business perspective, it often doesn't make sense to co-mingle different "departments." Each department will use a different set of accounting procedures and analytics. It's easier to keep them separate. 

@Matthew Kreitzer can speak in depth on the legalities, but in my non-legal opinion, why subject one business's liabilities to another? Flipping is inherently more risky than landlording. I wouldn't want my rental portfolio to be subject to legal liability caused by my flipping activities.