It seems that a lot of investors shy away from getting a real estate license due to the increased liability.
Is this true?
DO YOU KNOW FELLOW INVESTORS THAT HAVE BEEN SUED?
If so, tell us the details.
THIS COULD HELP US ALL STAY OUT OF COURT. :-X
DealMakerGH,
Lawsuits are just part of doing business in our screwed up society. If you run a significant business, you WILL be sued sooner or later. Obviously, if you only have one or two properties, your chances of being sued are far less than if you have 30, 50, or 100 properties. This whole thing boils down to the fact that about 25% of our follow citizens are lazy bums who are living on public handouts. Their goal in life is to do nothing (but guzzle beer and smoke cigarettes and dope) and get paid for it. For these low-lifes, the ultimate goal is to become rich by either hitting the lotto or suing someone. This is a VERY UGLY fact of life.
To answer your question, there is NOTHING that you can do to prevent it. These scumbag predators don’t sue you because you did something wrong, they just sue you because you appear to have something that they want. It’s just that simple.
Here are a couple of things that happened to me.
Several years ago, I was a partner in another business. My partner’s wife decided to sleep with everyone in the state and my partner divorced her. She ended up living with a convicted criminal in a rented trailer. They had nothing. So, she decided to sue may partner and I for $500,000 EACH because she had nothing and we were living the good life. After 2 years of legal stupidity and $15,000 out of my pocket, it was finally dropped. We didn’t do anything to get sued. She accused us of stealing company funds; treating her unfairly; illegally firing her; etc. When we finally deposed her, she admitted that she made the whole thing up!
Now to real estate. About 2 months ago, I evicted a tenant for non-payment of rent. He made a lot of threats when I told him that he was being evicted - he was going to get even with us! A few days before the eviction proceedings, he called to say that the ceiling had fallen on his mother and she had a neck injury. Obviously, I knew this was a scam from the very beginning. She wanted the insurance company’s info so that she could file a claim.
Fortunately, I learned a few things from my earlier lawsuit. The property in question is held in a land trust with a local attorney as trustee. The trustee wouldn’t tell the scumbag or her lawyer who the beneficial interest was. The trustee didn’t know who the insurance carrier was. Since I am the property manager, I initiated my own investigation. I discovered that the scumbag was already totally disabled but working for cash at a bar and for another real estate investor. I also discovered that she had tried to sue someone else only a month before! She also had a lengthy criminal record (a mother everyone could love). So, I had the lawyer sent a letter to her lawyer saying that it was apparent that she was trying to extort money from us. We also notified him that she was totally disabled (with a neck injury) and was working under the table for cash. In the event of a lawsuit, we would feel compelled to fully investigate these matters and notify the government of any insurance fraud and tax evasion that we discovered. I also might have mentioned to the other tenants that I intended to see the scumbag in jail for trying to extort money from us via this fraud. (Could this have gotten back to the scumbag)?
I haven’t heard anything else from the scumbag or her lawyer (although she could still rear her ugly head).
So, the lessons learned:
- proper entity structuring is KEY
- don’t own anything - let someone else own it and just be the manager
- be aggressive in dealing with these scumbag predators
- YOU manage the plan and tell your attorney what YOU want
- throw out every obstacle that you can
- have insurance in case everything else fails
Good Luck,
Mike
Mike,
That is an swesome response. I just have one question from the end of your post. I know that we are not supposed to own anything, and I am looking into transferring my properties into separate entities. My question is, can you still write off the mortgage interest if you do not own the house anymore? Are there any extra write offs or fewer write offs from any of the usable entities?
I know you probably are not an accountant, but to the best of your knowledge you might be able to help.
Thanks,
Ryan
Ryan,
Yes, you can definitely write off the interest if you are paying the interest. More accurately, your business will be writing off the interest it pays.
There are some differences in the write-offs allowed in different entities. However, it is generally accepted that your properties should be owned by an LLC (or the beneficial interest is an LLC and the defacto owner of a trust). LLC’s offer all the normal writeoffs that are needed to operate a real estate business. There are some additional writeoffs and loopholes with C corps that you may want to explore as your business grows. (I am not a lawyer or accountant and don’t want to be).
Good Luck,
Mike
As Mike said, if you are in business long enough and do enough business you are going to get sued at some point. This is true in practically any business, though probably moreso in REI.
I can’t tell you how many times I’ve been threatened with a lawsuit. Most wouldn’t even make it to the courthouse steps even if the lowlifes could actually afford an attorney in the first place because the “suit” would be so hollow it’d echo. Have your paperwork/contracts in order, an attorney on standby, and know when to hold your ground.
All that said, the most important thing is to try to stay out of the courtroom as much as possible. Having good contracts, a good attorney and picking good people to work with (be it tenants, partners, buyers, sellers, etc) will all help with this. But this is also why many investors choose not to get their RE licenses, as well. By doing so, they are increasing their odds of getting sued tenfold at least. Not only would you now be in a new business field where lawsuits are even more common than REI, but you have now become a licensed professional which also makes you much more accountable and unfortunately, much more likely to lose a case even if you are in the right.
Raj
Most wouldn't even make it to the courthouse steps even if the lowlifes could actually afford an attorney in the first place
They don’t need any money because there are just as many scumbag contingency lawyers as there are scumbag tenants!!! These lawyers aren’t trying to pursue a court trial, they want to extort you into settling (or the insurance company into settling). It’s not much different than being held up on the street corner by a crack addict with a gun, except these scumbags wear a suit!
Mike
No argument from on that, Mike. However, I’ve also learned that if you have a pretty much open and shut case, and there is very little possiblitity that they can actually win, once those same scumbag attorneys realize that you’re not going to just fold with threats, that they will usually request a sizeable retainer from the plaintiff for their time and effort. A retainer that those lowlife plaintiffs usually cannot afford or are willing to pay once the attorney informs them that they will more than likely lose and on top of that, that the defendant will also more than likely countersue and that they could end up in worse shape than they are now.
Raj
this is why this country should adopt an english tort system. Where if you sue someone and lose you have to pay thier attorney fees. The problem with this is that its attornies who pretty much make laws and they wouldn’t ever do that because people wouldn’t be sueing as much. They don’t care rich or poor as long as someone is sueing and thier fees are getting raked in.
When we talk about suing, we always talk about the scumbags. I was one jury in my life (I have no idea why they picked me but it was a big mistake). The plaintiff was trying to get a chunk of change from this CPA who hit her car. It was actually coming from his insurance company. But I hijacked the jury and we only gave her the doctor’s costs. But there are people that sue that are not scumbags. Some time you and I as landlords put money ahead of the tenant’s safety. And when they get hurt, we need to have our butts sued. That poor tenant should not have to worry that if she looses she will be devastated. After all she did nothing wrong. That is why they call it guilt and not guilty instead of innocent. Because just because you are not convicted does not mean that you didn’t do it.
There is right and wrong on both sides. Sometimes someone neglects something and deserves it. I lived in an apartment once where the landlord never took care of anything. There was a front entrance with a porch that literlally had holes in it. He wouldn’t fix things because he just didnt want to work. he wanted to live off the rents and not fix anything.
However, there are more people who look to take advantage of someone who did well for themselves and just want a chunk of thier change. I think its disguisting what people do. I had a client who was once telling me how they got 450k from a grocery store because her son fell. The kid didnt even break his leg or anything. Who deserves that kind of money just because someone slipped.
do you think that presentation has anything to do with it?
a friend i work with, told me that she hates her landlord simply because the landlord owns 15 houses and ride around in a corvette.
correct me if i’m wrong, but wouldn’t you say that if you’re collecting rents - maybe pick them up in like a ford pinto or something, and oh yea, never tell your freakin tenants how many properties you own…don’t be a braggert (spelling?)…
Hey,
First: The only winners in a law suit are the lawyers from both sides.
Second (referencing reply just above): it is a lot easiier to be envious than to actually change your life.
Them that gots will always be hated and the target of them that don't.
Peace,
Richard
rhm,
who did you use to do your site? i like the colors scheme.
Hey,
WebsitePros did the original site which I did not like. I rebuilt it myself which I like which may or may not be very good. There are cheaper site hosts out there than website pros. There are things you can do to drive people to your site from search engines which I know nothing about where if you had competent hosts would optimize that for you. You probably get what you pay for. Search around and good luck.
Peace,
Richard
TMCG,
You are absolutely right. Don’t pickup the rent in your Mercedes. Don’t tell the tenants that you own a lot of property. Better yet, use entities and don’t own anything!!! Make it very difficult for anyone to find out anything about you. You should be the manager for your entity. Have an unlisted home phone number. Use a PO Box for receiving mail for your entities. Be very aggressive in dealing with scumbag predators.
Mike
to me that makes sense. tenants should not see you as the owner, but simply the guy who “runs the place”.
props, man you seem down on those “scumbag” tenants… 
TMCG,
In my experience, at any one time about 90% of tenants are fine. In fact, if you only have a few properties, you can go quite a while without ever encountering a bad tenant. My first year in business, I bought 10 rentals and I went well over a year without ever having even a single problem with a tenant. However, as your portfolio grows, the numbers catch up with you and you get to deal with the scumbags on a monthly basis. Am I down on the scumbags, drug addicts, liars, and lazy dirtbags - YES!
Mike
Last time I checked, there was a law on the books here in Virginia that stated landlords MUST include their home address and phone number on the lease. Hopefully that law has been repealed.
Beem,
That doesn’t make sense. If the landlord is a company, then it doesn’t have a home address or home phone number. Are companies prohibited from owning rentals in Virginia?
Mike
Last time I checked, there was a law on the books here in Virginia that stated landlords MUST include their home address and phone number on the lease.The landlord is actually the LLC.