I am new to the wholesaling game and just read the book
Flipping Houses second edition by William Bronchick…I have to say this was a good book with tons of information, but after reading I have a few questions about LLC’s…
In this book it tells you to NEVER do wholesaling under your name…That you should perform an LLC to protect yourself…
My question is, if I intend to wholesale properties and not do any rehabbing myself and just assign it to an investor, do I need a LLC?
and 2, if I only intend on doing this part time for now, is there a certain number of houses I should get under my belt before I get the LLC, or shoud I have an LLC before I do any flipping?
Thanks in advance for your replies!
Are you just planning on assigning the contracts and plan on never closing the homes??
For now I just plan to assign the contracts until I get some cash flow…But in the future I hope that I will be able to rehab some myself…Thanks…
If I go ahaead and get the LLC, do I have to do so much business to keep it?
if your assigning it will be done in your name since you never own the property and all your contracts will be signed with your name/assign on the buyer spot…
with an LLC you can do no activity or tons, it does not matter. Just remember you can carry a business loss for 2yrs in an LLC and if you do nothing 1 yr, remember to still file taxes with the corp and renew the license each yr
Here’s my take on this whole LLC/Corp thing. Businesses are started everyday simply by someone saying that “I’m business” and start working. Sole Proprietorship has been around longer than any other form of business. It’s simple to start, simple to keep taxes, and simple to work. Don’t complicate things until they actually need to become more complicated.
LLC’s don’t do anything but protect your personal assets from your business assets and vice versa. Until you actually get to the point where you need them legally separated, is it worth the cost/hassle?
Is it worth the cost/hassle to start an entity, manage it, file reports, etc, etc UNTIL you actually know for sure that a) you’re going to be in business and b) you’re going to stay in business? What if you decide that you can’t/don’t want to do this business? Better to at least have a couple under your belt before diving head first into the unknown.
Raj
Roger J,
Thanks for your response, you make some very valid points, I guess 1 or 2 flips wouldnt hurt before I thought about forming a LLC, I am new to this all and just don’t wanna go about it the wrong way starting out.
If you never own it, you don’t need an LLC.
Once you’re going to own one, do it in an LLC.
Little Suzie slips and falls on that board and breaks her neck and your million dollar liability umbrella isn’t going to even touch the judgement that Mama’s going to get. At that point, if you own it in your name, all of your personal assets are at risk.
I think that the key to Mark’s statement is “personal assets” at risk. You have to determine IF your personal assets are at risk enough to warrant forming a business entity before you even know if you are going to be doing business.
More simply stated. From my experience, the majority of people starting out don’t really have any personal assets to speak of. House, if they have one, is mortgaged to the hilt. Cars are too. They usually don’t own any other property and very little savings or investments of any kind. So forming an entity to protect something that you don’t have is plain silly.
Raj
But you DO have something to protect. Your investment and the leverage it gives you!
Corporate stock is considered an “investment.” As such it can be siezed to satisfy a judgement against you personally.
Member interest in an LLC is considered “personal property” by statute. Therefore it is NOT available to satisfy a judgement.
Consider what happens when you rear end someone in a Pinto with your bank-financed car, get sued and lose. You have an investment property in your name. A judgement attaches and now all of your income from that property forever belongs to someone else, plus they get whatever profit comes at sale. And they attach your next property, and the next.
Now suppose you own that property in a corporation. Your “investments” in corporate stock get handed to your adversary. They control the corporation and the assets it owns. They get the income and can sell the asset at their leisure - they own it.
Now suppose you own the property in an LLC. A judgement can’t attach to the property - you don’t own it. They can’t receive a controlling interest in the company - it’s personal property. They CAN gain a charging order against LLC income, and begin paying income tax on that LLC income for you. You, as manager, never make a distribution from profits - so they’re paying tax on income they will NEVER receive. The LLC still controls the asset and can sell it, loan the proceeds to some other company, buy another property, whatever. The point is that you still control the asset and can use that to continue your business. This is why charging orders so seldom actually happen - nothing for the victor but taxes.
You see, both corporations and LLCs protect your personal assets from company risks. But only the LLC protects your investment from your PERSONAL risks.
Even if you have no other personal assets, it’s protection for the investment that you gain from an LLC. People get sued personally every day. Why give them your investment property, too?