Efficient and Protective set up

[Matthew Hicks]

Hello everyone,

I'm going through the process of splitting out my rental business from my fix and flip/redevelop business and I want to set up these legal entities correctly and ensure proper insurance for them as well. I'm curious what people think about my set up plans (based on conversations with my lawyer), and I have one additional question that I'd love to get some feedback on.

For my rental business, my lawyer has suggested that I set up a management company LLC that will act at the property manager for all of my rentals. My actual rentals will sit in a separate LLC that will elect as a partnership. The management company will be the managing partner with a minority interest, and I will be the majority owner. As I grow, I can then set up other LLCs to keep key properties separate, or segregate my rentals once I own 10 or so in a specific LLC.

Having the manager being the managing partner across all LLCs will allow me to have one single checking account to manage all of my rentals no matter how many LLCs (elected as partnerships) that I eventually have.

From an insurance perspective, I Just plan to have an umbrella policy for each LLC and individual property insurance on each property.

All good so far (I think). The question becomes, where does my redevelop and flip business sit? I understand there are a few good reasons for keeping this business separate. First, for tax reasons I may be in a situation where I want to elect to be taxed as an S-corporation. Second, an umbrella policy on a rental only LLC will be much more affordable than what will be viewed as a construction company.

With that said, I'd like to maintain a single checking account for this business as well. Is it possible to have my management company also be a minority owner in my fix/flip legal entity to do this?

Second question, if I buy a property that I plan to fix/flip and later decide to rent it, or vice versa, what should I do? I imagine this issue comes up rather frequently for some of the more active investors out there.

Again, any thoughts are greatly appreciated.