Entity Structure Question

Hey REI Club,

I’m looking for advice on a business plan I’m creating.

The plan involves a company that focuses exclusively on rehabbing properties.
All of the profits from the rehab company would then be transferred to a different company that would purchase and hold rental properties.

We plan on having 7 members/shareholders for the companies. No wages need to be taken out from either company by any of the members.

My thought is that we would form an S Corp for the rehab company, having 7 investors as shareholders, and distributing the least amount possible to them at the end of the year.
The rental property holding company would be an LLC, with the 7 investors as members.

My question is would this structure minimize the tax obligations for both companies?

Could we have the LLC be a shareholder of the S Corp and issue a distributive share from the S corp to the LLC at the end of the year?

How should we go about this entity structure?

Thanks for the help in advance


I am not a CPA, but my thoughts on the tax liability are that it does not matter whether your S-corp rehab-flip business distributes any cash to the investors. All the income earned by the S-corp (even though retained by the business) is allocated to each shareholder on a Schedule K-1 and taxed on each shareholder’s personal 1040 as ordinary income. Bottom line, the income is still taxed even if it is not actually distributed.


Actually you can create a S-Corp with two LLC subsidiaries, one for rehabbing properties and one for holding portfolio rentals!

Your S-Corp does no direct business but acts as the management for each LLC and all cost’s, expenses and tax deductions are reconciled to the S-Corp distribution on the K-1.

Since taxes are calculated for the calendar year, if you rehab 7 homes and buy two properties for portfolio purposes all are part of a physical years operations, and every corporate deduction is relevant.

LLC’s are a flow through entity and the S-Corp is a flow through entity!

Bubba’s S-Corp - Bubba’s Fix & Flip LLC
Bubba’s Portfolio Holdings LLC

Bubba’s Future - $$$$$$$$$$$$$$$$$$$$$$$$$$$


Good Luck,



Thank you so much for the reply. I really appreciate it.

The more I thought about the structure, the more I thought that I should create some form of a shell company to act as the management, I thought about an LLLP or LP, but your structure is much better.

It makes more sense as an S-Corp.

From my financial projections I was calculating ~22% realized tax rate, but this structure should yield lower than that.

Thank You again. I love this site.

If the S-corp owns the LLC’s, your asset protection is toast.

Corporate stock is an “investment” and therefore is subject to being awarded to a judgement creditor. Now the guy who sued you owns the S-corp and everything the S-corp owns including the LLC’s. Bad move.

A stand-alone LLC with multiple members avoids creditor takeover with charging order protection. An S-corp does not.

Even if you have an S-corp acting as “manager,” remember that individuals are still taking management actions on the LLC rentals. If the individual is sued for negiligence, the S-corp will not protect the LLC from loss. Individuals are always responsible for their individual actions. If the same partners own the LLC AND the S-corp management company, any asset protection is lost.

With regard to taxes, there is no tax code for LLC. LLC is an asset protection device, not a tax strategy. A multi-member LLC (MMLLC) can choose to be taxed as a partnership, C-corp or S-corp.

However, irrespective of what type of entity runs the flip business, flips are ordinary income (not capital gain) which means that in addition to income tax at the partner’s marginal rate, each partner will also pay self employment tax on the net income. This is a total tax bite for the flipping business of 35%-45%.