Would you recommend an LLC?

Question

I am rebuilding my portfolio now that we have moved to a new city.

I plan to use my own cash for flips, and lender assistance for buy/holds.

My loans for buy/holds would be in MY personal name with the bank. But I figured if I buy my flips outright it might be in my best interest to have an LLC purchase them for a little extra liability protection. I will have 1-3 flips going at any given time.

Do you agree an LLC would be a good idea?

Additionally, If  I were to own my buy/holds outright I would have a different LLC for each of them. But since I’m only holding each FLIP property for a few months from the time I buy til the time I sell, would I be okay owning all of them under one LLC?

Thanks for the advice.

Jon Reed · Answer

@Curtis M.

Also, you can get a loan in the name of your LLC from a bank. You will just be the guarantor on the loan. We have only had our LLC form 1.5 years and all of our properties have commercial notes in the name of our LLC and me as the personal guarantor. This will be the best way in order to keep all of those extra mortgages from showing up on your personal credit history.

If you put all the rentals in your own name then if you go to buy a car and they pull your credit then they will see a ton of mortgages in your name and then have to show them your business income and history to prove that those extra mortgages will not impact your ability to pay your car payment.

Jon Reed · Answer

I love these LLC conversations :)

My opinion, have a single LLC you use for flipping and another LLC you put your buy and hold properties into. This is a good mix of liability protection and doesn't over complicate your accounting.

An attorney will tell you to get as many LLCs as possible and have everything broken up. For one, the more LLCs you have the more money they can make because you will be coming to them every time you buy a property. Also, if you do get into litigation then their life is made easier when everything is in their own LLC.

An accountant will tell you to have a single LLC for each type of business you do. This will make their lives easier when you go to file your taxes and just for general accounting work. Also, if you keep it simple it reduces the risk of getting audited by the IRS because it looks less shady then having 20+ LLCs all funneling money around.

It is good to keep in mind that an LLC isn't this magic wall that will protect all of your assets if you get sued. If you are are negligent or doing something shady a judge can (and probably will) pierce the veil of your LLCs and go after your personal assets. Since I run an extremely ethical and transparent business I don't worry about creating a new LLC for every property.

Lastly, I am just a DIY guy doing real estate... so always talk to a professional.

Tiffany Koffel · Answer

@Jon Reed.

This is similar to the advice my CPA gave me. An LLC for each type of business.

Jon Reed · Answer

@Curtis M.

Awesome! I actually grew up in Joplin and my wife and moved to the Springfield area a few years ago.

Also, if you find out something from your lender be sure to holler back and share the knowledge!

Curtis M. · Answer

@Jon Reed ... interesting. I’m going to discuss with my lender next week about that. I like it.

Side note: I passed through Springfield this morning. I grew up in Joplin and my folks still live there. Spent a week there for Christmas and headed back to Knoxville today.

Jon Reed · Answer

@Curtis M.

What are your concerns of having 4 flips going at the same time under one LLC? Liability risk (from contractors and purchasers) or financial risk (from your lender)?

Curtis M. · Answer

@Greg Dickerson I sent an email to my accountant to learn his thoughts on the series LLC. From my hour of research it sounds perfect, but a bit complicated with the extra moving parts. I’ll post below what he says about it when I hear back. I appreciate your feedback.

Curtis M. · Answer

@Jon Reed thanks for the comments. I’d set up an LLC for the buy/holds too but I won’t own those outright. And the bank doesn’t like lending or refinancing to an LLC. So until they’re paid off (I’m in no hurry) those will likely just be in my name with a solid umbrella policy.

But the flip properties I’m torn. One LLC for all sounds easiest. But if I’m fortunate enough to have four flips going at once, then they’re all at risk under a basic LLC. But at the same time the goal would be to sell all flips within a few months of buying so maybe the exposure at any given time isn’t great enough to create a complicated accounting structure. But the Series LLC mentioned above is interesting. I sent my accountant a request for his thoughts. I’ll share what he says when I hear back.

Greg Dickerson · Answer

The best thing to do would be to discuss this with your attorney and accountant as there are tax ramifications as well as asset protection considerations. Ask them about using a Series LLC for short term flipping.

That being said its always best to do business as an entity not a sole proprietor for many reasons. If you are flipping multiple properties owned by a single entity keep in mind if you get into a legal situation the entire portfolio can be put at risk and sales can be help up so the only real protection is a SPE for each asset. This is where the series LLC could be beneficial.  @Scott Smith could provide some advice here.

Would you recommend an LLC?

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