Hi, I am a new investor and new to the forum. I purchased a condo 2 yrs ago that needed fixing up, there had been a leak which was fixed and the owner wanted to unload the property. I recently sold the unit and made a profit of 88K and am investing that profit through a 1031E. My question relates to purchasing future properties under an LLC. Is it wise to start an LLC and purchase properties or stay a sole proprietor? What liabilities are there? Thanks for your help.
Sheila
If you do the rehab work yourself and negotiate deals on your on won behalf, you defeat most of the protections the LLC can offer you.
I don’t understand the point of using an LLC for a short term hold. If you are going to rehab and hold you should think about it. On a short term hold I would think a good insurance policy would be the best protection.
Why do rehabbing yourself and/or negotiating your own deals defeat the asset protection advantages of the LLC? I do both under an LLC and hold title in the LLC name. If I’m making a stupid mistake I’d like to know more.
jmd_forest
Any work you do that causes an injury (e. g. deck collapses because it was not built properly) makes you personally liable for the civil judgment. The plaintiff’s attorney will sue you personally as the person who did improper work and doesn’t need to sue the LLC to get to your personal assets. He will sue the LLC as the property owner to get to the LLC’s assets. The same deal applies to housing discrimination and any kind of civil tort regarding your negotiations. Most people set up some other kind of plan where they don’t own their assets. That allows them to participate in the business without risking personal assets.
I wouldn’t be too worried. Most lawsuits settle for the insurance limits.
A question for you BLL or anyone who can answer. Myself and four others are in a LLC together and investing in RE. In our group one of us currently owns his own painting company. In the very near future, ie 2 weeks, he will have his general contracting license. Our plan is to use him to do all the rehab work to the properties we purchase. My question, to protect our LLC in the case something does go wrong, would it be best to have his other company(painting) give the LLC a bill of service for services rendered, or is there a different method we should go about to protect ourselves.
The LLC hires the painting company to do work. Use a formal contract and pay market rates to keep the two entities separate.