Do You Need An LLC To Wholesale Real Estate? [2024 UPDATE]

Real estate wholesaling is an investment strategy that offers beginners an opportunity to enter the real estate realm with minimal investment capital requirements. The art of wholesaling resembles its sister strategy known as flipping houses. Each investment strategy requires similar due diligence, with wholesaling offering a faster and easier path to closing.

A real estate wholesaler targets properties that are typically priced below market value, usually because highly motivated sellers need to move distressed properties quickly. If done correctly, real estate investors can wholesale real estate without a real estate license, real estate broker, or real estate agent.

Wholesale deals can be done with an owner-occupied or rental property, a multi-family property, or distressed properties, like a foreclosure.

Wholesalers enter a real estate contract with a seller, receiving equitable interest through the Principle of Equitable Conversion. But before closing on the initial purchase contract, the wholesaler assigns their' right to purchase' to another end buyer. As a result, the only required capital would be funding for the earnest money deposit.

The wholesaler uses an assignment of sale–the legal instrument that allows 'contracted buyers' to transfer their equitable interest to another buyer. The real estate wholesaler's gross profit is the pricing differential (between the initial and second purchase agreement).

Now, this begs the question, "Do I need an LLC to wholesale real estate?"

Wholesaling real estate is like any other for-profit business with an objective to turn a profit. Like any business or organization, wholesalers can select from a number of business entities. The available business entity options have not changed in 2024.

Wholesale real estate business structures are discussed below, including the use of a Limited Liability Company (a.k.a., LLC), a type of entity that a real estate wholesaler can establish under state statute.

• Do You Need An LLC To Wholesale Real Estate?
• Wholesale Real Estate Business Structure Options
• How Is A Wholesale Real Estate LLC Taxed?
• Pros & Cons Of An LLC For Wholesaling Real Estate
• How To Start A Real Estate LLC In 7 Steps
• How To Use An LLC For Wholesaling Real Estate
• Real Estate Wholesaling Contracts
• Wholesale Real Estate LLC FAQs
• Final Thoughts: Can You Wholesale Real Estate Without An LLC?

 Ready to take your real estate investing to the next level? Learning LLC Wholesale is just the beginning. Schedule a FREE Strategy Session with us to learn how our Ultimate Investor Program can unlock even more opportunities and strategies in your market. Don't miss out—take the next step toward maximizing your investment potential today!

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*Before we begin our guide on wholesale real estate LLCs, we invite you to view our video on How To Wholesale Real Estate Step by Step (IN 21 DAYS OR LESS)!  Host and CEO of Real Estate Skills, Alex Martinez, provides a comprehensive, step-by-step guide for beginners to start wholesaling real estate!

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Do You Need An LLC To Wholesale Real Estate?

No, an LLC is not a requirement for wholesaling real estate.

Questions like "Do you need an llc for wholesaling?" often arise and the answer is no. However, it can be a wise business choice. While it's legal to wholesale without one, forming an LLC can offer valuable financial and legal protections.

Operating under an LLC can provide tax benefits, access to business loans, and enhance your professional image in the real estate industry, especially in locations like California where these advantages are particularly beneficial.

Now, to better understand wholesale real estate business structures, let's discuss the options available to you below.

Read Also: How To Start Wholesaling Real Estate For Beginners In 7 Steps

5 Wholesale Real Estate Business Structure Options

In its simplest terms, business entities are organization types created by one or more individuals for the specified purpose of engaging in a trade, conducting business, or similar activities.

A business entity decision has important legal and financial implications, and the benefits and concerns for each are discussed below. These are the essential considerations when deciding how to structure your wholesale real estate business:

• Sole Proprietorship
• Partnerships
• Corporation (C Corp)
• S Corporation (S Corp)
• Limited Liability Corporation (LLC)

Sole Proprietorship

A sole proprietor is the simplest to establish and manage. It is defined by an individual or a married couple – acting as an owner & business operator. According to legal statutes, a business's sole owner is, by default, a sole proprietorship. Sole proprietors are not mandated to register with the state; however, they may need to meet licensing or permit requirements.

The most salient points regarding this entity are–

• The sole owner of the wholesale real estate company is personally liable for the company's debts & liabilities.
• It is more difficult to obtain business financing and build business credit if the wholesale business is not registered.
• Consultants and freelancers tend to work as sole proprietors.

Partnerships

A partnership defines the legal relationship between two or more people who work together in trade or business. A general partnership is the default entity for multiple business owners and needs state registration.

Each partner contributes money, labor, or skill to a partnership, and each share in the profits and/or losses. 

A partnership is not allowed to be any of the following:

Source: IRS.gov

The partnership is required to file an annual tax return to report income, deductions, gains, and losses generated from its operations. A partnership passes its profits and losses to its partners and members, who report it on their personal returns.

Corporation (C Corp)

A corporation (C Corp) is an independent legal entity. It operates independently from its owners – a.k.a., shareholders. The corporation eliminates the owner's personal liability from the business debts and decisions. The corporation's officers and directors manage the company, although it is noted that only one person may perform each of these functions. So, one individual can create and control the entire incorporated business.

Corporations are ideal for larger businesses due to their expenses and laws that are to be followed. Each state sets forth its rules, forms, and fees for corporations. Corporations are great investment vehicles for venture capitalists or potential investors because they offer wider ownership.

S Corporation (S Corp)

An S Corporation is part of the tax code added by Congress in the late 1950s to encourage family and other small businesses. This is because subchapter S avoids double taxation experienced by C corporations. 

The S Corp offers limited liability protection (like the C Corp) but acts as a pass-through entity because S Corps have no corporate tax obligations.

Limited Liability Corporation (LLC)

An LLC is among the more popular legal entities. LLCs are formed at the state level, meaning the rules governing an LLC differ among states. An LLC is a great fit for startups and smaller companies.

LLCs offer an easy setup and a simple business structure. Creating and operating an LLC is generally less expensive than other C corporations with regard to compliance requirements.

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*For in-depth training on starting a wholesale real estate business, Real Estate Skills offers extensive courses to get you ready to make your first investment! Attend our FREE training and gain insider knowledge, expert strategies, and essential skills to make the most of every real estate opportunity that comes your way!

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 How Is A Wholesale Real Estate LLC Taxed?

LLCs offer protection from personal liability. For the most part, the debts and assets are owned by the LLC, not the owners. The LLC has no federal income tax obligation. The profit and loss simply pass through to the members and owners, who report it as personal income. LLCs have these tax filing options-

• As a Single-member LLC, one can file as a sole proprietor.
• Multi-member LLCs can file as a partnership.
• Any LLC has the option to file as a C or S corporation.

The selected business entity will directly impact the company's tax obligations and the ability of the company to borrow or raise capital. However, the main aspect to consider is how to protect yourself from potential lawsuits created by the business.

For more information on tax filing requirements in each state, we invite you to review Nolo's State Guide to LLC Report & Tax Filing Requirements.

Read Also: Wholesaling Real Estate Taxes: The (Ultimate) Guide 

Pros & Cons Of An LLC For Wholesaling Real Estate

As noted above, a Limited Liability Company (LLC) is a business entity that protects its owner's assets by offering a limited liability but with the simplicity provided by a sole proprietorship or partnership (i.e., the lack of legal, recordkeeping, & tax formalities & maintenance requirements).

Forming an LLC also opens the owner's ability to open a commercial bank account, obtain necessary permits or licenses, and enter a legally enforceable contract of sale – without risk of personal liability.

Advantages Of LLCs When Wholesaling Real Estate

One of the essential benefits of an LLC is the liability protection it offers its owners regarding their personal property. If the LLC, as a business, faces a lawsuit or creditors refuse to pay, business assets may be lost; however, the owners' property (i.e., car, home, savings & other assets) are protected.

In addition, a Limited Liability Company's tax structure allows a real estate wholesaler to avoid the double taxation typically found in corporate entities.

Instead of paying corporate taxes, the profits generated from the wholesale business, as an LLC, pass through to its owner(s). This saves on the expense of professional accountancy services required to file separate, more complex tax returns.

LLCs also help create a real estate wholesaler's professional image for future clients.

Disadvantages Of An LLC When Wholesaling Real Estate

• Forming a Limited Liability Corporation is far less complex than the requirements of a corporate creation but still requires paperwork and fees. As a state-created business entity, an LLC may need to pay annual fees, depending on the LLC's domicile state.
• With intentions of financing future operations through a lender, LLCs should be aware that an LLC may have to agree to a higher rate of interest than other business entities.
• To wholesale real estate in a state other than the LLC's domicile state, the LLC must be registered in that state as well.
• If the Limited Liability Company (LLC) has two or more members or owners, the LLC must get an Employer Identification Number (EIN) issued by the Internal Revenue Service -even if the LLC has no employees. A one-member LLC with employees will also need to obtain an EIN available at IRS.gov. Additionally, if the LLC wishes to be taxed as a corporate entity (rather than a sole proprietorship), it must obtain an EIN.
• The type of business and the exact location will dictate if the Limited Liability Corporation needs to obtain a state/local business license. Complete your due diligence by checking with the state agency to ensure your real estate wholesaling business operates lawfully, with the required registration, if applicable.
• If an LLC collects sales tax or has employees, it will need to appropriately register with the domicile state's taxing authority.  

How To Start A Real Estate LLC In 7 Steps

Forming a real estate LLC is a strategic move for investors seeking protection and flexibility in their real estate ventures. In this guide, we'll walk you through 7 essential steps to establish your own real estate LLC successfully:

1. Choose A Name For Your LLC
2. File Articles Of Organization
3. Select A Registered Agent
4. Decide Who Will Manage The LLC
5. Create An LLC Operating Agreement
6. Comply With Regulatory Tax Mandates, & Regulations
7. File Annual Reports

1. Choose A Name For Your LLC

First, select a name for an LLC in accordance with state rules. Each state's LLC regulations may differ, but most require –

• The business name ends with the Limited Liability Company designation or the LLC acronym.
• The selected name for the real estate wholesaling business cannot be the same as any other business entity (LLC or otherwise) that exists in the state in which you are registering the LLC.

Certain states may offer, for a fee, the option to reserve your chosen LLC for a short time, prior to the time the LLC files the Articles of Organization.

Examples Of Wholesale Real Estate LLC Names

A wholesaler's brand offers the first impression that you want to relay to potential buyers and motivated sellers. Be sure not to pigeonhole your company and efforts by selecting too narrow a name.

Wholesale LLC names may reflect your location, like Beacon Wholesaling, LLC.

Consider these important suggestions when considering a name for your Real Estate Wholesale business –

• Check the domain name availability with your local Secretary of State as you consider LLC wholesale company names. Simply conduct a business name lookup.
• Say the name aloud. Is it easy to pronounce?

Which rolls off the tongue easier? 

• Apogee Wholesaling LLC
• Landmark Wholesaling LLC

Although debatable, many professional marketers suggest a simple, short name – think Google or Apple. The general rule is to keep it to a maximum of three words (and ten syllables) to avoid branding issues, like wholesale homes LLC.

• Capstone Wholesaling LLC
• Summit Wholesalers LLC
• Zenith Wholesalers LLC
• Happy Homebuyers LLC

Use alliterations or terms found in nature.

• Haven Wholesaling LLC
• Granite Wholesaling LLC
• Big Rock Homes LLC
• Swell West Homes LLC

2. File Articles Of Organization

The formal creation of an LLC includes the filing of Articles of Organization. This is filed with the domicile state's corporate filing office, the Secretary of State more often than not.

A few states, like Washington, Delaware, New Jersey, Mississippi, and New Hampshire, refer to this document as a 'Certification of Formations.’ The Commonwealths of Pennsylvania and Massachusetts refer to this legal document as a 'Certificate of Organization.' Understanding these terms is crucial when going through real estate LLC formation in different states, as each jurisdiction has its own specific requirements for setting up an LLC.

Often, articles of organization can be submitted online at the Secretary of State's website in your domicile state. To complete this filing, you will need the following –

• The chosen Limited Liability Company name
• The name & the address of the LLC's Registered Agent
• The names of the owners/members
• The name(s) of those managing the LLC

3. Select A Registered Agent

Every Limited Liability Company (LLC) is required to designate a Registered Agent (RA), an essential step in the LLC formation process.

The Registered Agent serves as the official point of contact for the LLC to receive important legal documents, tax notices, and government correspondence. These documents may include service of process (if the LLC is sued), annual reports, and compliance notices. The RA must have a physical street address (not a P.O. Box) in the state where the LLC is registered, known as the domicile state.

An LLC owner, member, or even an employee can act as the Registered Agent, provided they meet the state’s requirements and are available during normal business hours to receive documents. However, many LLC owners choose to hire a third-party, such as a commercial registered agent, to handle this responsibility.

Commercial registered agents are professional services that specialize in acting as RAs for multiple businesses, ensuring that documents are handled properly and in a timely manner. They also offer privacy benefits by keeping the owner’s or member’s personal address off public records.

Using a commercial Registered Agent can be especially advantageous if the LLC operates in multiple states, as these services can provide registered agent coverage in each state where the LLC is doing business.

States typically maintain a list of approved commercial Registered Agents, and while these services come with a fee, they provide peace of mind by ensuring important documents are never missed, helping the LLC stay compliant with state regulations.

Benefits of Using a Commercial Registered Agent

Hiring a commercial registered agent offers several advantages beyond meeting legal requirements.

For one, it provides flexibility, as the RA must be available during standard business hours to receive documents. With a professional RA, LLC owners can operate their businesses without worrying about missing important deliveries while out of the office or during non-standard hours.

Additionally, using a commercial RA adds a layer of privacy by keeping the owner’s or member’s personal address off public records, which can help avoid unwanted solicitations or potential legal exposure.

Finally, for businesses operating in multiple states, commercial RAs simplify compliance by providing coverage across various jurisdictions, ensuring the LLC meets all state-level requirements for maintaining good standing.

4. Decide Who Will Manage The LLC

When forming a Limited Liability Company (LLC), one of the key decisions to make is determining who will manage the company.

In most small LLCs, the business is member-managed, meaning one or more members (owners) are directly involved in the day-to-day operations of the company. This structure allows the members to maintain control and make decisions without outside involvement.

Member-management is common for small businesses or family-owned LLCs where the owners want a hands-on role in running the business.

However, an LLC can also be manager-managed, where one or more non-members are appointed to oversee the company’s operations. These appointed managers act similarly to a Board of Directors in a corporation, providing corporate oversight, guiding the company’s strategic direction, and handling the business's operational needs.

The LLC’s members retain ownership, but the appointed managers are given authority to make key decisions on behalf of the company, such as managing finances, making real estate purchases, or negotiating contracts.

This management structure can be beneficial when the members do not have the time, expertise, or desire to handle daily operations, allowing them to focus on other ventures or remain passive investors in the LLC.

Member-Managed vs. Manager-Managed LLCs

• Member-Managed LLC: In this structure, all members have the right to participate in managing the business. Decisions are typically made through member voting, and the members themselves are responsible for handling tasks like signing contracts, securing financing, and making strategic business decisions. This setup works best for smaller businesses where the owners want direct involvement in operations. The primary advantage of a member-managed LLC is that it provides members with control and transparency in decision-making.
• Manager-Managed LLC: For larger LLCs, or in cases where the members prefer a more hands-off approach, the company can opt for a manager-managed structure. In this model, the LLC appoints one or more managers—who may or may not be members of the LLC—to handle the business’s day-to-day operations. These managers are granted authority to make decisions on behalf of the LLC without needing member approval for every action. The manager-managed structure is ideal when the members want to delegate responsibility to individuals with specific expertise in areas like finance, operations, or real estate.

Advantages of Manager-Managed LLCs

A manager-managed LLC can offer several advantages, particularly for businesses with complex operations or passive investors.

First, it allows the LLC to bring in experienced professionals to handle critical aspects of the business, such as financing, real estate transactions, and strategic growth initiatives.

Second, it relieves members from the burden of daily operational tasks, allowing them to focus on other investments or projects.

Finally, having a professional manager can streamline decision-making, ensuring that the company can act quickly and efficiently without waiting for member consensus.

This structure is particularly useful in larger or multi-member LLCs where not all members are actively involved or available to participate in management decisions.

5. Create An LLC Operating Agreement

While most states do not legally require LLCs to create an Operating Agreement, drafting one is highly recommended for several reasons.

An Operating Agreement is a formal document that outlines the internal rules and procedures governing the LLC’s operations.

It acts as an internal guide that clarifies the roles and responsibilities of the LLC’s members and managers, how profits and losses will be distributed, how decisions will be made, and the process for admitting new members or transferring ownership interests.

Without an Operating Agreement, the LLC is subject to the default rules dictated by state law, which may not align with the specific goals or preferences of the members.

By creating a customized Operating Agreement, LLC members can maintain greater control over their company’s operations and ensure that any disputes or unforeseen issues can be resolved in a manner that reflects their intentions.

Key Provisions in an LLC Operating Agreement

1. Ownership and Voting Rights: The agreement typically specifies each member's ownership percentage and how voting rights are allocated. This is especially important for LLCs with multiple members, ensuring that decisions are made fairly based on ownership stakes or another agreed-upon structure.

2. Management Structure: The Operating Agreement defines whether the LLC will be member-managed or manager-managed, as well as the roles and responsibilities of each manager or member. It also details how decisions will be made, including the voting process and what types of decisions require member approval.

3. Profit and Loss Distribution: The document outlines how the LLC’s profits and losses will be distributed among its members. This can be based on ownership percentage or another method agreed upon by the members.

4. Membership Changes: An Operating Agreement establishes the process for admitting new members or transferring ownership interests. It also typically includes guidelines for what happens if a member wants to leave the LLC, passes away, or becomes incapacitated.

5. Dissolution and Winding Up: The agreement should address how the LLC can be dissolved and what steps must be taken to wind up the business’s affairs, distribute assets, and settle liabilities. 

6. Comply With Regulatory Tax Mandates, & Regulations

7. File Annual Reports

Most states require LLCs to file annual or biennial reports to maintain their legal status.

These reports often include updated information on the LLC’s business address, members, and registered agent.

Filing fees can range from as little as $20 to as much as $750 per year, depending on the state. Failing to file these reports on time can result in penalties or the LLC losing its good standing status.

To stay compliant, it’s essential to be aware of your state’s specific filing deadlines and fees.

The LLC Tax and Annual Filings Requirements: 50 State Guide provides a convenient reference for checking your state's requirements, helping you avoid late fees or administrative dissolution of your LLC.

Consequences of Failing to File Annual Reports

1. Late Fees and Penalties: If the LLC fails to file the required report on time, the state may impose late fees and penalties. These fees can accumulate quickly, increasing your financial burden.

2. Loss of Good Standing: Missing filing deadlines can cause your LLC to lose its “good standing” status with the state, which can affect the company’s ability to conduct business, secure financing, or enter into contracts.

3. Administrative Dissolution: Continued failure to file reports can result in the state administratively dissolving the LLC, effectively ending its legal existence. Reinstating the LLC after dissolution is often a lengthy and costly process.

To avoid these issues, it’s important to mark key deadlines on your calendar and use the state guide to ensure timely compliance with reporting requirements.

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*For in-depth training on real estate investing, Real Estate Skills offers extensive courses to get you ready to make your first investment! Attend our FREE training and gain insider knowledge, expert strategies, and essential skills to make the most of every real estate opportunity that comes your way!

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How To Use An LLC For Wholesaling Real Estate

As noted above, after coming to agreed-upon terms with the seller, a real estate wholesaler enters a purchase & sale agreement with a seller. This fully executed contract (and the provision of an earnest money deposit) is the legal document that triggers a change in ownership dictated by the Principle of Equitable Conversion.

At this time, the buyer receives equitable interest, while the seller converts their interest to personal property until closing.

The purchase contract sets forth the terms of the deal and offers the buyer the opportunity –

• To buy the investment property at the agreed-upon terms, or
• Assign their right to purchase to another end buyer, usually a cash buyer.

But note, that while contracts generally allow for assignments (by default), homeowners or their representatives may modify the terms. Some contracts prohibit assignments or require that the seller or property owner approve the assignment. These are important terms for wholesalers, which can be changed through a mutual agreement by both sides of the transaction.

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 *Want to learn the proven strategies for finding cash buyers? View our video below where Alex Martinez covers How To Find Cash Buyers For Wholesale Deals! [FREE & ONLINE]!

Read Also:  How To Find Cash Buyers For Wholesaling Real Estate

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Using An LLC To Enter The Contract

Forming an LLC is a strategic way to avoid situations where assignments are not allowed or conditioned heavily contractually. Savvy wholesalers can enter a contract with a seller as the LLC-buyer and provide a deposit to be held in escrow.

When another buyer is selected, instead of assigning their equitable rights, the real estate wholesaler can simply transfer the ownership of the LLC to the buyer for a fee. In this regard, the original contract never needs modifying because the buyer didn't change. The only change was the LLC's ownership.

To be transparent, the seller should understand your intentions; however, the real estate transaction will likely proceed to close uninterrupted after this disclosure. 

Double Closing A Wholesale Real Estate Transaction With An LLC

The double closing offers another technique to close for a real estate wholesaler operating as an LLC. As its name suggests, the double close is two closings – typically back-to-back, in which the wholesaler is the buyer in the first deal and the seller in the second transaction. One drawback of the double close is dual closing costs, including the filing and title company fees.

When a double close is done with an LLC, the wholesaler may complete the home buying purchase with the original seller and then sell the LLC to the final buyer after closing.

Real Estate Wholesaling Contracts

Wholesale Real Estate LLC FAQs

Curious about using an LLC (Limited Liability Company) for your wholesale real estate ventures? Below, we'll address common questions and provide insights into how forming an LLC can benefit your wholesale real estate business.

How Much Does It Cost To Set Up An LLC?

There is usually a nominal filing fee required when submitting the LLC's articles of organization. These fees vary by state, and on average, one can expect the fee to be around $100.

We invite you to visit TRUiC for the specific requirements for forming an LLC in your state! 

What Is The Best Entity For Wholesaling Real Estate?

The entity that will best support a real estate wholesale business is contingent on the business goals and size. Initially, an LLC may be the best choice before the wholesale business begins to turn a significant profit – somewhere around $50,000/year.

Once the LLC hits a certain income/profit level, it may make financial and legal sense to convert to an S Corporation. However, each real estate wholesaler must determine which entity would serve them best by consulting with a real estate attorney or accountant professional.

Final Thoughts: Can You Wholesale Real Estate Without An LLC?

In conclusion, do you need an LLC to wholesale real estate?

Wholesalers are certainly able to wholesale real estate without using a Limited Liability Company (LLC). With the many options available, from extremely simple to advanced corporate structure, the best option for you should be considered with your professional tax and legal advisors.

Successful wholesalers often choose an LLC, as it provides valuable flexibility. It protects the wholesaler's interests in the deal and provides more opportunities to wholesale multiple wholesale properties simultaneously.

Forming an LLC will help increase your real estate investing and wholesaling opportunities plus – likely improve your return on investment.

 Ready to take your real estate investing to the next level? Learning LLC Wholesale is just the beginning. Schedule a FREE Strategy Session with us to learn how our Ultimate Investor Program can unlock even more opportunities and strategies in your market. Don't miss out—take the next step toward maximizing your investment potential today!

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*Disclosure: Real Estate Skills is not a law firm, and the information contained here does not constitute legal advice. You should consult with an attorney before making any legal conclusions. The information presented here is educational in nature. All investments involve risks, and the past performance of an investment, industry, sector, and/or market does not guarantee future returns or results. Investors are responsible for any investment decision they make. Such decisions should be based on an evaluation of their financial situation, investment objectives, risk tolerance, and liquidity needs.