I am currently in the process of purchasing my first rehab. The funding source I am using will not allow me to purchase through my LLC. Because I have been a stay at home mom for 5 years now and we have been using my husband’s income, we must purchase under both of our names and using his income and credit. I have been struggling for months to get my business going and have found the perfect home for my first flip. I am getting a tremendous deal and feel if this is the way I need to go to get started then I guess I have to take my chances. Can anyone advise me further?
I would do the deal and forget about an LLC. It’s not like it’s going to do much for you anyway.
BLL,
If LLCs do not offer any protection/benefits then what would you recommend instead? How do you protect your personal assets from your business activities?
Fadi,
Create an over lapping system of entities that creates redundancies and gets assets out of your name. Take full advantage of statutory protections like homesteads and life insurance. Carry proper insurance. Operate your business in full compliance with the law. There is no one step solution.
Fadi:
An LLC is not a be all and end all.
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Many shrewd business people would put the business in the name of the spouse running the business, the managing member of the LLC, and the home in the name of the other spouse. So if some liability arises out of the business, the home is separate. Homestead laws would also protect the home. Now, if one spouse owns the home, and the other spouse does rehabs personally (without an LLC), the fact that he owns nothing else diminishes the risks temendously, even without an LLC.
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If you have an LLC, and YOU run it, someone can still sue you personally for negligence as the “manager” of the entity.
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If you have an LLC, do a rehab, and here in NY State, if you use an “unlicensed” contractor, and a worker gets injured on the job, the hospital, and not the worker, would come after the LLC first, and then if the LLC does not have workman’s comp, come after YOU personally if you DO NOT carry workman’s comp, because state law holds the owner personally responsible for not being insured. Ironically, if you own the house that you’re rehabbing personally, and if the same thing happens, and you then claim that it’ll be a home you can move into, the “homeowners” insurance will cover the workman’s comp. State law requires workman comp coverage for owner occupied homes in homeowner policies.
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Of course, getting liabilty insurance, have your tenants carry renters insurance. making sure you use contractors that are insured would ALL diminish your business risks tremendously.
A business I bought was established within an “S Corp”, an accident happened, both the S Corp and the owners were sued personally, the owner himself, for negligently mananging the company.
After a year of taking depostions did the attorney for the plaintiiff realize the owners moved to Florida, put the proceeds into their new home, Homestead laws in FL puts the entire home out of reach of the plaintiff.
Because all legal papers were served at the business location where I’m the owner, I was not surprised the lawyer dropped the case like a rock as soon as he found this out. It wasn’t the “S Corp” that stopped him, it was the homestead law, plus the issue of jursidiction in FL.