Flipping with an LLC

Rehabbing & House Flipping
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Flipping with an LLC

Garrett Rockholt
Amarillo, TX · Member since 2019 · 7 posts · 4 votes

Hello Bigger Pockets! My Name is Garrett Rockholt. I am an aspiring real eatate investor based out of Amarillo Texas. I have a question with regards to flipping within an LLC to get started. Here is where I am at. Ive been educating myself over the past few years on real estate investing. The end goal is to create passive income with buy and hold real estate. A close friend of mine approached me today and asked me to partner with him and start an LLC to invest together. After an in depth discussion, I agreed and decided it would be the best way to move foreward. We decided to make a plan with the first course of action being flipping a few houses to pay off a little debt and stack some cash for our buy and hold real estate in the future. So my question is this, what is the appropriate course of action for these goals? Can you buy and flip in an LLC or is that mainly for holding your assets? We will be using a hard money lender to finance the flips. The quick cash up front is needed to pay off some personal debt on both sides and build some money in the LLC to work with. We are green. No experience in the game whatsoever. I really appreciate any input and will use it to use foreward in most efficient way!

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Scott SmithPro Member
Attorney · Austin, TX · Member since 2014 · 1k+ posts · 932 votes
7y

Hey Garrett,

An LLC can be a great tool for flips, it's just important to establish a good operating agreement when establishing the LLC. If you do get into buy and holds you would want to use a separate LLC for those, as they are in a different asset class. The reason you split up assets by their class is that you are working to limit liability attached to your entity, and each of those strategies have their own intrinsic liabilities, some overlapping and some completely unique. As you scale you will want to look into introducing more protection, but to start with an LLC is a great option.

I would also recommend finding experienced professionals in your area. If you work hard and listen you can often build a network of real estate investors who can tie you into their deals, giving you experience and opportunity - your two greatest needs when you kick things off. Also building a good investing infrastructure as you are getting into things will benefit you if you intend on doing this long-term: find lenders, CPAs and attorneys who also invest in real estate to work with as they will be the ones who can help you set things up for smooth sailing and answer questions with the niche advice you want.

This isn't legal advice, simply my opinion as a real estate investor.

Podcast Guest on Show #109
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  • Bob Okenwa
    Real Estate Agent/Investor · Peoria, AZ · Member since 2016 · 2k+ posts · 2k+ votes
    7y

    @Garrett Rockholt

    You should look into getting an operating agreement drawn up by a lawyer to ensure both of your interests are protected. I'd also look at consulting with a CPA to make sure you and your partner are knowledgeable of the tax implications of your new endeavor. 

    Figure out how the money is going to work and look into getting a business bank account also.

    Gotta handle the administrative stuff today to try and protect against any problems tomorrow.

    0Reply
  • Garrett Rockholt
    OP
    Amarillo, TX · Member since 2019 · 7 posts · 4 votes
    7y

    Awesome! Thank you for your input. We will be covering all those bases next week!

    1Reply
  • Jason Coyle
    Contractor · Fort Worth, TX · Member since 2017 · 100 posts · 49 votes
    7y

    You can definately acquisition properties under an llc. There are some challenges tho as businesses under 1 year in business have pretty much zero credit worthiness. Hard money lenders will likely be your only funding option without some liquid capital handy to throw around. @Ryan blake can answer any hard money questions. Your personal credit still plays a role in your llc, and most hml's are deal based and dependant on the ARV I believe.

    Other than that. Keep posting on BP and get some tips on how to analyze deals and construction strategies. The const portion greatly effects the deal in addition to holding costs, realtor fees, ect.

    Then, go find some deals! Finding good properties to put your money to work in, is a numbers game. 1 in sometimes 20 or more properties are worth getting in to, so get on some mailing lists and start hunting. I find that using individual wholesalers as opposed to some of the "franchise" guys has better results for actual deals. Someone that's been around awhile and filters out the bad deals.

    Good luck!

    1Reply
  • Garrett Rockholt
    OP
    Amarillo, TX · Member since 2019 · 7 posts · 4 votes
    7y

    Thank you Jason! I was honestly thinking of driving for dollars to try and find our first few deals and using a wholesaler as my second option. Really trying to find solid deals that are really safe and make sense from a hml point of view. Again, I appreciate your help!

    1Reply
  • Jason Coyle
    Contractor · Fort Worth, TX · Member since 2017 · 100 posts · 49 votes
    7y

    Great idea! By cutting out the assignment fees you've already increased your spread by 5k minimum. Haven't come across too many investors that dfd themselves, so good on you man!

    Looking forward to hearing about some deals you get into.

    1Reply
  • Garrett Rockholt
    OP
    Amarillo, TX · Member since 2019 · 7 posts · 4 votes
    7y

    Thank you! That makes yhe most sense to me. My initial plan was to use wholesaling as a entry point to learn the process and get some cash from the assignment fee. Decided to go with flipping to start off once my partner approached me to maximize the profit and move a little faster. And i look forward to your input as I share our future deals! We will take all the advice we can get!

    0Reply
  • Scott SmithPro Member
    Attorney · Austin, TX · Member since 2014 · 1k+ posts · 932 votes
    7y

    Hey Garrett,

    An LLC can be a great tool for flips, it's just important to establish a good operating agreement when establishing the LLC. If you do get into buy and holds you would want to use a separate LLC for those, as they are in a different asset class. The reason you split up assets by their class is that you are working to limit liability attached to your entity, and each of those strategies have their own intrinsic liabilities, some overlapping and some completely unique. As you scale you will want to look into introducing more protection, but to start with an LLC is a great option.

    I would also recommend finding experienced professionals in your area. If you work hard and listen you can often build a network of real estate investors who can tie you into their deals, giving you experience and opportunity - your two greatest needs when you kick things off. Also building a good investing infrastructure as you are getting into things will benefit you if you intend on doing this long-term: find lenders, CPAs and attorneys who also invest in real estate to work with as they will be the ones who can help you set things up for smooth sailing and answer questions with the niche advice you want.

    This isn't legal advice, simply my opinion as a real estate investor.

    Podcast Guest on Show #109
    2Reply
  • Garrett Rockholt
    OP
    Amarillo, TX · Member since 2019 · 7 posts · 4 votes
    7y

    Thank you Scott! There is apparently a lot more to the LLC sidw of things than i had anticipated so im excited to meet with my lawyer and learn more!

    1Reply
  • Scott SmithPro Member
    Attorney · Austin, TX · Member since 2014 · 1k+ posts · 932 votes
    7y
    Originally posted by @Garrett Rockholt:

    Thank you Scott! There is apparently a lot more to the LLC sidw of things than i had anticipated so im excited to meet with my lawyer and learn more!

     @Joshua D. had a great article about partnerships that can help you work through some of the basic questions you should discuss with anyone you plan on working with. You can check it out here.

    Podcast Guest on Show #109
    0Reply
  • Eric Johnson
    Lender · Chicago, IL · Member since 2016 · 653 posts · 313 votes
    7y
    @Garrett Rockholt I second the recommendations of getting an operating agreement drawn up. Two green people going into real estate together, there’s no telling what can happen. People you think you trust do things that end with you getting screwed in 5 different ways. Seriously be careful, no matter if it’s your childhood friend. It doesn’t matter... business is business. Also, besides reading books, have you done active studying within your market? Have done the 100 house rule that J. Scott suggests? This is visiting 100 fixer and open house in your market and you analyze the rehabs, ARV , scope of work, possible acquisition etc. Before I ever did a flip with my mentor, I looked at so many houses I lost track.. and also online you can do the same analysis by using Redfin and trying to jot down scope of works from pictures. If you guys need help with fInancing Im a loan broker In LA and specialize In fInancIng for entrepreneurs and real estate Investors, we have HMLs in our database that will lend up to 90% of acquisition and 100% of constructIon on holdback or Id be down for just a phone call If I can provIde any more value for you thanks! -Eric
    1Reply
  • Garrett Rockholt
    OP
    Amarillo, TX · Member since 2019 · 7 posts · 4 votes
    7y

    Thanks again Scott! I will definitely give that article a read!

    1Reply
  • Garrett Rockholt
    OP
    Amarillo, TX · Member since 2019 · 7 posts · 4 votes
    7y

    Eric, thank you for your input! We are going to have an operating plan written up sometime this week. Did some researched and had some discussions based on some articles we read and will have it fine tuned with a lawyer. As far as the market experience goes, we are lacking on physically viewing the properties. I have ran some numbers on what i would estimate repairs to be with houses ive found on forclosure websites, zillow, and other sources although i doubt they were highly accurate. I am in the process of connecting with a mutual friends real estate agent who is also an investor specialising in flips and buy and holds. Once this connection pans out i plan on using him to get in and see multiple properties and hopefully mentor the both of us. I spoke with a contractor who has agreed to work with us and make himself available for short notice job bids. With regards to the financing side of it, id definately like to have a conversation with you. I am still getting familiar with how the bp website works and such but i will see if there is a way for us to exchange information. Thank you!

    0Reply
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