Do I Need an LLC for My House Flipping Business?

Starting a limited liability company (LLC) for your house flipping business can provide several benefits.

Most importantly, an LLC structure offers limited liability to its owners, which can protect their personal assets from lawsuits and creditors.

For a house flipping business, lawsuits can arise from things like hired contractors injuring themselves in a house owned by your business, or an electrical fire that spreads to neighboring houses.

LLCs are also affordable, highly flexible (from a tax point-of-view), and can make your house flipping business seem more credible.

Recommended: Use Northwest to form an LLC for $29 (plus state fees).

Should I Start an LLC for a House Flipping Business?

LLCs are a simple and inexpensive way to protect your personal assets and save money on taxes.

You should start an LLC when there's any risk involved in your business and/or when your business could benefit from tax options and increased credibility.

LLC Benefits for a House Flipping Business

By starting an LLC for your house flipping business, you can:

Protect your savings, car, and house with limited liability protection
Have more tax benefits and options
Increase your business’s credibility

Limited Liability Protection

LLCs provide limited liability protection. This means your personal assets (e.g., car, house, bank account) are protected in the event your business is sued or if it defaults on a debt.

House flipping businesses will benefit from liability protection because of the risk of property damage including fire and flood, as well as the risk of workplace accidents.

Example 1: While building an addition for the house you are flipping, the neighbor attempts to sue you, claiming it crosses onto their property. Should you be found in the wrong, your personal assets as the owner are protected under limited liability so they could not be taken in the settlement.

Example 2: While visiting the worksite, a hired contractor injures themselves on an exposed wire and demands you pay for their medical expenses. Your personal assets could not be used to pay for this since your LLC protects them with limited liability.

Example 3: After you leave the worksite, an electrical fire breaks out and spreads to a neighboring home. The owners are suing for damages. This can be paid with business assets but not personal ones since they are covered by your LLC’s limited liability.

An LLC will also protect your personal assets in the event of commercial bankruptcy or loan default.

To maintain your LLC's limited liability protection, you must maintain your LLC's corporate veil.

LLC Tax Benefits and Options for a House Flipping Business

LLCs, by default, are taxed as a pass-through entity, just like a sole proprietorship or partnership. This means that the business's net income passes through to the owner's individual tax return.

The business’s net income is then subject to income taxes (based on the owner's tax bracket) and self-employment taxes.

Sole proprietorships and partnerships are taxed in a similar way to LLCs, but they do not offer limited liability protection or other tax options.

S Corp Option for LLCs

An S corporation (S corp) is an IRS tax status that an LLC can elect. S corp status allows business owners to be treated as employees of the business (for tax purposes).

S corp tax status can reduce self-employment taxes and will allow business owners to contribute pre-tax dollars to 401k or health insurance premiums.

The S corp status requires that the business pay the employee-owner(s) a reasonable salary for the work they perform.

In addition, the business might need to spend more on accounting, bookkeeping, and payroll services. To offset these costs, you'd need to be saving about $2,000 a year on taxes.

We estimate that if a house flipper can pay themselves a reasonable salary and at least $10,000 in distributions each year, they could benefit from S corp status.

You can start an S corp when you form your LLC. Our How to Start an S Corp guide will lead you through the process.

Credibility and Consumer Trust

House flipping businesses rely on consumer trust. Credibility plays a key role in creating and maintaining any business.

Businesses gain consumer trust simply by forming an LLC.

A growing business can also benefit from the credibility of an LLC when applying for small business loans, grants, and credit.

Northwest will start an LLC for you for just $29 (plus state fees).

Get Started

How to Form an LLC

Forming an LLC is easy. There are two options for forming your LLC:

You can hire a professional LLC formation service to set up your LLC for a small fee
Or, you can choose your state from the list below to start an LLC yourself

Select Your State

For most new business owners, the best state to form an LLC in is the state where you live and where you plan to conduct your business.

Do LLCs Need Insurance?

All businesses need insurance to protect their business assets — even LLCs. This is because the limited liability protection from being an LLC protects your personal assets, not your business assets.

Common Situations Business Insurance May Cover for a House Flipping Business

Example 1: You are visiting the home of a seller to view the property before you decide to buy it or not. While walking through the property, you accidentally trip over the seller’s dog and fall into the china cabinet, knocking it over and smashing most of the pieces inside. Your general liability insurance covers damage caused by your business to other’s property, so you should be able to file a claim and get help with replacement costs.

Example 2: A potential investor is visiting your office to talk to you about an upcoming development. She is walking down your steps to leave when the railing breaks off. She falls off the steps and breaks her arm. She asks that you pay for her medical treatment. Your general liability insurance policy will likely cover this cost.

Example 3: One of your competitors is claiming that you have libeled him with your latest marketing campaign. The general liability insurance you carry will pay for your legal fees, including the cost of a settlement if you settle out of court.

Other Types of Coverage House Flipping Businesses Need

While general liability is the most important type of insurance to have, there are several other forms of coverage you should be aware of. Below are some other types of insurance all house flipping businesses should obtain.

Commercial Auto Insurance

If you have a car or truck that you use primarily for business, you need commercial auto insurance. A commercial auto insurance policy will ensure that you meet the insurance requirements of your state. It will also protect your business from liability. If you or an employee causes an accident, the insurance policy will pay for vehicle repairs, medical treatment, and legal fees if there is a lawsuit.

Commercial Property Insurance

All of the equipment and supplies you use to renovate and flip houses took a considerable investment to acquire. If you were to lose most or all of your commercial property in an event like a fire, you might struggle financially to replace it. With commercial property insurance, you can file a claim with your insurer to get financial help with replacement costs as long as the damage was caused by a covered event.

Commercial Umbrella Insurance

A commercial umbrella insurance policy will protect your business if you are in a situation where your general liability insurance policy limits are exceeded — like if you lose an expensive lawsuit. Once the limits of your general liability insurance are reached, the umbrella policy will continue to pay until its own limit is reached.

Home-Based Business Insurance

If your house flipping business is based out of your home, there is a chance that your homeowner’s insurance will not cover accidents resulting from business activities. You will need to discuss your coverage with your homeowner’s insurance provider to determine what is covered and what is not. You may be able to get a home-based business insurance policy added to your existing homeowner’s policy, or you may need to get a separate policy.

Should I Start an LLC FAQ

Choosing the right business structure depends on your business’s unique circumstances and needs. However, unless your business is very low risk (like a hobby), an LLC is likely the better option.

Visit our LLC vs. Sole Proprietorship guide to learn more.

At a minimum, you’ll need general liability insurance and workers' compensation insurance.

Read our House Flipping Business Insurance article for more info.

The startup cost varies greatly depending on your ability to do home repair and the size of the homes you flip. You will need a significant amount of money to purchase the properties to then flip. To increase funds, consider working freelance doing home repairs or partnering with a real-estate business.

Visit our How to Flip a House guide to learn more about the costs of starting and maintaining this business.

The ongoing expenses of running a house flipping business include the cost of property purchase and rehab, labor, and marketing costs.

Learn more about running a house flipping business.

House flipping businesses make money by purchasing and rehabbing a property for less than the after repair value (ARV) of the property.

Learn more about starting a house flipping business.

For investors looking to diversify their portfolios, real estate is always an attractive investment. House flipping businesses follow the same buy-low-sell-high investment mantra.

Location is a key factor in the success of house flipping businesses. To make a profitable flip, it is important to gauge the demand for property in the location you want to invest in.

The average profit margin for a house flipping business needs to be at least 30% to be sustainable.

Learn more about starting a house flipping business.