Flips owned via Land Trust in a separate LLC from rentals?

[Chris Howard]

Hello all, should you keep flips separate from an LLC that holds rentals? If so, why? Other than asset protection.

Is the income taxed differently? I typically like to take title via Land trusts and have the beneficial interest go to the LLC ...is it better to have the beneficial interest go to individual instead of my LLC that holds the rentals?

[Costin I.]

Not a lawyer, nor CPA, so take this with due diligence:

1. Land trust gives you anonymity and complements the LLC, which gives you asset protection. For sure, you don't want to move the beneficiary to the individual - all you'll get is the loss of asset protection.

2. An LLC is a pass-through entity for taxation purposes. You can choose to have it taxed as a S-corp, but you don't want to own properties in an S-corp (Owning Rentals in an S Corporation Might Be a Costly Mistake).

3. While you can probably do it, you'll mix passive income with active income. And for sure it will complicate your bookkeeping and accounting.  And of course, the taxes.

4. You want your asset holding entity to be just that - only hold the asset. You should have a separate operations entity - that will do all the public interfacing, property management, hiring of contractors, leasing, etc. This one can be a C-corp so you can have a salary, establish health plans and retirement accounts (e.g. Solo 401K- the best options of self direct investment retirement accounts).

5. And you'll want a separate LLC for flipping, maybe even a separate one for each flip (if a Series-LLC is not available to you). That way, if a buyer comes back with a complaint about a flip you sold them years ago, it will not put to risk your other flips or the assets holding.

6. Consult with a specialist (watch Podcast 109 and talk with @Scott Smith) - you might be able to combine the operations LLC with the flipping LLC into one, but is likely to be better if you have an LLC just holding your flipped properties. Not sure on this one, talk with Scott.

So, in short, you want them separate for accounting, taxes, and asset protection purposes.