How to set up deal with private lender for flips

[Jennifer Pithie]

I have two properties I want to flip in the LA area. I own one and have negotiated purchase on another. I am an experienced designer and have private lenders (friends) interested in investing. What is the best way to set up the deals for each? I've never worked with private investors. Both are SFR and rehab would be SFR + new addition with ADU.

Property 1: $525K mortgage (I own), rehab $500K, sell $1.9M

Property 2: $750K (negotiating now), rehab $400K, sell $1.9M 

Both projects would take about 9 months. 

Jenny 

[Will Barnard]

Originally posted by @Greg Dickerson:

@Jennifer Pithie 

You will also want to hold title to the properties in separate LLC's. Make sure to discuss this with your accountant and attorney for the best structure for your situation.

I don't believe this to be valid or good advice. First, for flipping here in CA, an S Corp or LLC with S Corp tax election is, generally speaking, the more advantageous entity to use. Second, why on earth would she need to form a separate entity for each flip? That is a huge waste of money and effort. Asset protection is not based on the number of properties you hold in an entity, it should be based on how much equity exposure you have taking into account your level of insurance. I have had as many as 8 or 9 properties under one flipping entity, but after considering the leverage, the equity exposure was not greater than my comfort level. Now, if I owned 1 property free and clear with no leverage and that equity was large, I would certainly place that one property in its own.

This is not tax or legal advice, just info from my experience and anybody reading is recommended to consult tax and legal advice.