I am in the process of creating an entity for my real estate business. I am wondering if any fellow investors have done the same thing and if so did you obtain any insurance for your company and what did you get.
Obviously individual properties require insurance (at least in my state), but I am talking about insuring the actual business. Is errors and omissions insurnace required/recommended? What about general liability and/or workers comp?
Thanks
We have a rental business. We insure the properties with a standard NOO (or Landlord) policy. We carry the maximum liability insurance available. All people who do work on the properties are individual contractors and not employees. We don’t have any other insurance for the business itself.
Not sure if you’re doing some other type of REI business besides buy & hold, but I don’t see the need to have any different type of insurance other than just a good policy for each property.
As of right now it is only wholesaling and rehabbing. I only have one buy and hold at the moment and the property itself is insured. I just didn’t know if anyone out there was using any sort of umbrella policy or general liability insurance for the business itself.
Obviously with any contractor that works on my projects they must have GL and WC insurance.
I appreciate your response Justin. I just want to make sure I am considering all angles.
I agree with Justin. Each property needs a standard landlord insurance policy. But, hold each property in a Sub S or LLC. I don’t think your business needs a GCL (General Commercial Liability) policy at this point. Maybe when your machine gets rolling you might.
A Sub S or LLC will insulate your personal assets in the event of a loss not covered by the landlord policy. If there is a negligence claim or other crazy claim the only assets that can be taken in a lawsuit are the ones placed inside the Sub S or LLC. Have the Sub S or LLC take title for sure.
LLCs are great for real estate b/c you get a step-up in tax basis for those real estate assets in the LLC. They have a more expensive filing fee (In ILLINOIS - $500 v. $150 for Sub S).
Sincerely,
Justin Gaffney
There is no isolation in the case of personal liability, which is likely if the OP is managing the property himself or doing the maintenance himself. The risk is even greater when doing rehab work yourself. Even with the absence of personal liability, cash taken out of the LLC can be considered a fraudulent transfer and ordered back into the LLC to pay LLC debts, including judgments.
I have heard that if I were to, let just say, fix the boiler myself and the boiler blows up, no LLC will protect me from that loss as it will appear as negligent on my part as you mentioned. But lets just assume I am smarter than that and I contract out the work. That, is where my original question was geared. On the wholesaling side of things, where I don’t intend on doing much of anything to the property save for maybe cleaning it out if necessary. I would be holding this property for a very short period of time in an LLC. Should I be concerned with any reasonable claim against me (relating to the LLC, not a car wreck or something outside of the LLC) while holding the property (single family typically non-tenanted)? Does anyone out there carry an umbrella policy over and above their landlord policies? It seems like the consensus is just move forward with the landlord policy and don’t look back.
The plaintiff could claim you failed to properly supervise the contractor. You can minimize this damage by only using licensed and insured contractors. Just make sure you verify the insurance is in force.
There’s they typical stuff like public nuisance, slip and fall, etc., but the likelihood of an excessive judgment is small. You would have to grossly negligent in order to get a judge or jury angry enough to rule against you.
Most people insure the property and then carry an umbrella policy.