The first time I went to register my fix-and-flip business as an LLC in Chicago, I was up all night worrying. Did I have all the right paperwork? What kind of questions was I going to get asked? Was I going to spend all day in City Hall? How long would the approval process take?
Of course, I was in and out in about 30 minutes, and just like that, I had all the benefits of a Limited Liability Company for my business. And since those paper-driven days, flipping houses in Chicago under an LLC is even easier.
You don’t have to have an LLC to flip houses but there are potential benefits to doing so, especially under a franchise. Let’s discuss them.
What Are the Benefits of Flipping Houses Under an LLC?
Flipping houses can be a worthwhile career, but it would be dishonest to say that there isn’t a certain amount of risk involved. If you buy a house and end up having to sell it for less than it cost to purchase and fix, you’ve lost money. If you borrowed the money, you will be on the hook for paying it back. Along with contractors needing to be paid for their work, there are a lot of associated costs.
Many people begin flipping houses on the side to try their hand at something new and at being their own boss. But when it is just you running the show, you are personally responsible for any debt and liabilities incurred. If something goes wrong, your personal assets could be on the hook to pay off debts. Forming a Limited Liability Company helps prevent that.
All corporate structures are legal inventions meant to help businesses. The corporation as we understand it is an entity formed so that the people running it could do so without fear of losing all their assets if something went wrong. But because of that protection, there are also a lot of organizational rules that have to be followed.
An LLC is a very limited type of company, meant for smaller structures. The owners of the LLC have protections for their personal assets but without the same reporting and maintenance requirements of a standard corporation. This doesn’t ameliorate all risk, of course, but it puts you in a much better spot, personally.
Additional Benefits of Flipping House in Chicago Under an LLC
Limiting your personal financial exposure is obviously a huge relief, especially since it allows you more flexibility to make an investment decision when there’s a deal that looks promising. But that’s not the only benefit to forming an LLC.
Another benefit is flow-through taxation. This is when you are taxed on your profits through your personal income, so you don’t pay business taxes and then personal taxes. If you own your business, and are unincorporated, you could face double taxation. Think of it like this: when you sell a house, and make a profit of (say) $25,000, that’s a profit for both your business and for you, as the owner of the business. From your point of view, that’s one and the same. But the IRS doesn’t see it that way.
Your business will be taxed on your yearly profits, but so will you as an individual. That can quickly cut into your profit margin. Becoming an LLC limits that in Illinois.
The Frequently-Asked Question About Single-Member LLCs
The question that is probably on your mind is “Can I form an LLC even if it is just me?” And the answer is “yes”. This isn’t the case in every state. Some states don’t honor asset protection for single-member LLCs, but Illinois does—thanks to changes in recent years.
There are gradients of protection depending on how many members there are, but the protections in Illinois are still pretty robust.
Of course, you can form an LLC with partners if your business is going to have partners (as many fix-and-flip companies do). Chances are you will still be what is known as “member-managed”, where you and your partners handle the business and the legal paperwork. Some LLCs are manager-managed, where someone is hired to do all the paperwork.
Now that we’ve talked about the benefits of flipping houses in Chicago under an LLC, let’s discuss how to file one.
How To File an LLC in Chicago
It’s fairly simple to file an LLC in Chicago and you can easily find a good attorney to help you or you can try to do it yourself.. The most important thing to know is that you aren’t dealing with the city, but with the state. LLCs are incorporated through the auspices of the Secretary of State, which means the application can be filed online or by mail.
Here’s what you’ll need to do:
- Choose a name for your LLC
- Appoint a registered agent
- File articles of organization
- Prepare an operating agreement
- Obtain an EIN
- File Annual Reports
An application typically takes about 10 days to process, though it can be expedited for a fee.
The Best Way To Limit Risk Flipping Houses in Chicago
The Chicago real estate market can be both risky and rewarding. While you’ve taken an important step to protect yourself by filing an LLC, doing so doesn’t necessarily help build your business. Investing in a HomeVestors® franchise can help with that.
When you become an independently owned and operated HomeVestors franchisee, like me, you become part of a network that everyone in Chicago knows. When someone needs to sell a house fast, they call We Buy Ugly Houses®—that’s HomeVestors’ nationally known and trusted marketing campaign. If you own a franchise, you can get that lead. It’s a quality lead—ready to sell, and with little to no competition.
Being an independently owned and operated HomeVestors franchise has made flipping houses in Chicago under an LLC much easier than doing it alone. I have access to tools and training to help my business run smoother and access to a network of experienced real estate investors should I need advice.
Are you ready to join a nationwide network of experienced real estate investors and get quality leads? Contact us today to find out how to become a HomeVestors® franchisee.
Each franchise office is independently owned and operated.