Do I LLC or Not (wholesaling)?

Question

Hello BP community, I'm a newbie New Jersey wholesaler to the community.  Ok here it goes... so is it absolutely necessary to open up an LLC for my wholesale deals?  I did about 3 deals without one (eeek)  So I came across online a legal zoom website and thought I should breeze one up for $149 or more or should I sit with a lawyer and have one drawn up?  I'm a little confused here.  Do I open up an LLC under each property name I am wholesaling or do I create my own business name?  I don't have any assets at the moment, so they certainly can't take anything, however, I do want to start out as a professional and do the right thing.  All responses very welcomed!  Thank you.

Jessica Zolotorofe · Answer

Hi @Todd Rizzardi. Really good question. If it's just you, then yes, you should have LLCs for each property, and there are some things to be really careful of if you're doing the project alone, even if you have an LLC, you are not always protected from personal liability. If you have numerous partners you plan on working with on numerous projects, I usually suggest my clients form one LLC that has a single operating agreement setting forth all of the important things like distribution of profits, who manages day to day, who can bind the company in contracts, lien the property, negotiate financing, sell the property, etc. You don't want to have to redo those terms every time you start a new project. So that would be your general LLC. The general LLC would then be the sole member of the site specific LLCs, so for example, if your general LLC was NJ Investors, LLC and you bought a project at 123 Main Street, you could form 123 Main, LLC. The sole member would be NJ Investors, LLC, so that if there was any liability issues, the only asset the particular project would have was that property, but taxes would flow through a single return, and the corporate structure is so much easier than starting over every time.

Jake Hottenrott · Answer

@Paul Amegatcher is right that you don't need a different LLC for each property.  Make sure you DO talk to an attorney about getting it structured properly and a CPA to make sure you know not only your income/expense on each deal but also your tax liability and tax minimization strategies to employ before the end of the year.  The under $40K suggestion deals more with tax liability than professional liability.  With that being said, if I were wholesaling I'd make sure to have the additional layer of an LLC set up.

As far as your liability, don't think that someone can't come after you because you don't have any assets right now.  In New Jersey, you can have up to 25% of your disposable income (anything over 30 times the federal minimum wage/week) garnished.  Again, make sure to structure your entity properly and you may want to look into making sure that your insurance needs are covered with a professional liability policy and a personal umbrella.  If you need a referral for someone in NJ, let me know.

Paul Amegatcher · Answer

You should check with a CPA but I have heard if you make less than $40K in income a year it does not really matter.  If you plan on making more then you should get an LLC  where you do all your flips in.  You do not need different LLC's for each property.

Todd Rizzardi · Answer

The reason you might buy and then sell a property with an LLC is because in certain cases you are forbidden to sell the home within 90 days after you purchase it. I believe this is the case if you were to buy a HUD foreclosure home, for example. So the LLC is a workaround... You sell the LLC, and the home is an asset of the company. You are technically not selling the home by itself.

This is sometimes the case for short sales too. Some banks will stipulate that 90 day thing in the contract.

Jevon Cecil · Answer

Besides the tax benefits, if operated properly, an LLC or corporation will provide asset protection for your personal assets. Just my opinion and I'm not an attorney 😀.

Jessica Zolotorofe · Answer

@Todd Rizzardi. I wholly disagree... on many levels. A non-investment property, absolutely. Any investment property that you will be flipping or leasing out, especially if you intend to have any partners or investors, and even moreso if it is a potentially risky project, like a foreclosure you didn't get to see in advance of purchase, or if there is any financing on the property... there are MANY reasons I would always suggest an entity form of ownership to a client.

Michele Redd · Answer

@Todd Rizzardi Thank you,  In reference to your comment "it is less common to buy homes with LLC's" Are you meaning as a retail homebuyer?  If so, yes I totally get that.  I'm speaking of buying homes to flip them or wholesale them, whereby I'm learning that to protect yourself and/or assets, that it would behoove me to open up an LLC and conduct business under the LLC.

Ashley D. · Answer

if you are selling your ownership to that llc for a specific property then yes you'll wind up buying an llc per wholesale deal.

Michele Redd · Answer

@Paul Amegatcher Thank you.  Great information.  Would you know if Legal Zoom is a viable company as they say attorneys work with them?

Ashley D. Thanks.  Good to know.  No, I won't be selling my ownership, just flipping/assigning the contracts to my buyers on each property I put under contract.

Do I LLC or Not (wholesaling)?

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