I found an interesting article online about protecting yourself from liablility. The person writing it claims to be an attorney. In summary, the article states that entitities such as corporations and land trusts can do little to protect an investor from liablility, and in some cases, it might make it easier for assets to be seized in a judgement. It can be found here:
Seems if we are rehabbing 2-4 properties a year, we could avoid corporate taxes by dba, and protect ourselves by buying a hefty amount of liabliliy insurance. Or am I missing something here? Are there any experts that could offer an opinion?
Note: About our personal situation: We have very little net worth beyond about $60,000 in various retirement plans. We are rehabbing to knock out debts which total about $28,000
Would we be making a big mistake by not incorporating?
Thanks for posting a link to this article! It’s super valuable and absolutely true. I’ve been in REI for a couple of years and was in desperate search of a way to protect my assets until I spoke with an attorney. As I read the article you’ve posted it confirmed my attorney’s ideas. Here’s a link if you’re interested.
I am not an attorney, and not qualified to give legal advice, but when I read articles like that, and at the bottom, the author of the article is selling a course, it raises red flags for me. Asset protection is not so simple that one article can cover every circumstance.
If I ever wanted to know about an issue about LLC’s or anything regarding entities or asset protection, I would ask someone in my state, such as an attorney who specializes in it…someone who is qualified to give advice.
I am also not a lawyer and am not qualified to give legal advice, but have 20 years in the construction business several years of investing in property.
I think the article has some merit in the fact that there is a difference between negligence and financial liability. If a court proceeding can prove gross negligence, there are ways around corporate and LCC veils. But the case would have to be worth it for a lawyer to pursue. I believe one advantage of the corporate veils is it makes it much harder for people to track down exactly what assets you have and make it more difficult and expensive to go after you for a small judgement, therefor it makes you less of a target for frivilous lawsuits. But if someone is seriously injured on your property and you are really negligent and they believe they can get a large monetary award, I wouldn’t count on a corporation protecting you completely.
But I am quite sure that the corporations and LLC will provide you financial protection in the event your deal goes bad and your LLC decides not to pay the contractor or your lender wants to forclose on your property. If you have not signed personally for the debt and the LLC has no assets then you are off the hook. I think that is the main reason people use multiple LLC’s They may loose one property but they won’t have creditors coming after all of their other assets.
As far as DKproperties question on needing protection. I have done large volumes of remodeling construction, owned multiple rental properties, and a couple of other businesses over the past 20 years. I have never sued anyone, nor ever been sued by anyone, other than minor small claims, non payments, security deposits, etc that come up during the normal course of running business. I also can’t think of anyone personally that I know or have done business with that was involved in a mega, bankrupting type liability lawsuit brought out of nowhere. I do know many people that have been injured in car accidents, so I think that you have more of chance getting run over by a bus on the way to your 2-4 rehabs a year than you do of getting a major lawsuit brought on over your work. If you really only have $60,000 in assets, it doesn’t make you much of a target for a lawsuit anyway. I would save the expense of the corporation and put it towards the rehab or put it towards buying a umbrella liability policy. If you are concerned that if a rehab goes bad a contractor is going to come after your last $60,000 and put you living on the street, then an LLC is a good idea. Gook Luck with your rehabs