Corporate Structure Strategy - Thoughts?

[Account Closed]

Hi all,

I've mainly focused on fix and flips over the last couple of years but am currently moving into more of a hold and rent strategy. I'm looking to discuss corporate structures with a local attorney but have been unable to find the right one at this point, so wanted to seek advice from the BP community.

My strategy is as follows:

1. Continue to fix and flip, but only ever undertake 1 at once

2. Sequentially purchase multiple buy and holds, mainly focusing on commercial buildings, again one at a time.

I'm keen to get perspective on the right number of entities to establish for both adequate protection and maximizing tax benefits. I'm currently thinking:

1. One sole member LLC for all fix and flips. By only ever undertaking 1 flip at a time, there wouldn't be a need for multiple LLC's on this side of the equation as we'd be out of one property before purchasing the next to minimize risk.

2. With the buy and hold side, would 1 entity be sufficient for purchasing and operating multiple commercial buildings, or would you suggest having 1 entity per building? The average commercial building will be 4,000-7,000 sq ft, zoned as office/commercial only. A large umbrella policy would be taken out for extra coverage prior to purchasing the first building.

Interested to obtain thoughts on whether a parent LLC or Delaware Series LLC would be beneficial, or whether my thinking above on one LLC for residential flips and one for commercial will provide adequate coverage.

Thanks in advance for your thoughts

Michael

[Craig Zappetti]

With regards to the first issue, if you will only ever have one flip at a time, then one LLC should be sufficient protection.

For the second question, I would strongly suggest having a separate LLC for each building. It may seem like a pain to have multiple LLCs which means multiple tax returns and accounting and annual reports, but these are nickel and dime issues when you consider the liability protection that the separate entity provides. If there is a fire or other casualty loss in one building and all of them are in one entity, the plaintiffs lawyers will attack all of the buildings. If they are in separate LLCs and run separately, then generally there should be no ability to get to the other buildings. This strategy with the umbrella policy should provide you with adequate protection. It also makes it easier to track financial results to show prospective buyer's when you go to sell the property.

I would also suggest a separate LLC as the management company that enters into contracts with each building. Again, the provides another level of protection if negligence in the management caused the casualty.

The Series LLC, while interesting in theory, seems cumbersome to me in practice. I am sure that some DE lawyers praise them, but having one large operating agreement that grows even larger with each series seems to be more trouble than it is worth.

I live and practice in the Philadelphia area and would be happy to discuss this with you.