Why You Should Be Using an LLC to Protect From Liability Claims on Renovations
Summary
This article from BiggerPockets discusses the importance of forming an LLC when renovating your short-term rental property. It explains how an LLC can protect your personal assets from liability claims arising from renovation work, such as contractor injuries or property damage. Hosts should consider forming an LLC to mitigate risk and protect their personal finances, especially when managing renovations themselves.
Key Insights
- •When a contractor orders renovation materials, the supplier has a lien on part of your home equal to the cost of the materials. If a contractor, for whatever reason, ends up not paying the supplier, the supplier can sue you for the cost, or, in the worst-case scenario, force the sale of the property to cover their costs.
- •If you own a renovation property in your own name, you are personally responsible for any legal claims filed against you. You can then stand to lose anything you own, including your savings, any other investment properties you own, or even your home.
Action Items
- ✓Make sure your LLC is run diligently and conscientiously. Avoid mixing personal and business expenses, for example, by using your business bank account for your personal bills.Effort: lowImpact: high
- ✓Consider forming an LLC for your investment properties, especially if you are managing the renovation work yourself.Effort: mediumImpact: high
Tools & Resources
- →LegalZoom: This article is presented by LegalZoom.
Common Mistakes
- ⚠If you start mixing personal and business expenses, for example, by using your business bank account for your personal bills, you are breaching that legal LLC shield, potentially opening up your personal assets to litigation after all.
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