Combine new REI business with existing business?

Question

We own and operate a choose & cut Christmas tree farm. It's set up as a sole proprietorship (no LLC). We set up a separate business for REI as an LLC, but I wonder if it would be better to roll the 2 businesses into one to facilitate obtaining credit for REI. The tree farm has been in business more than 10 years and shows a modest profit (a VERY modest profit).

But, it's a very different kind of business for tax purposes. For the farm, we use a Schedule F, which is for reporting farm income and expenses. For REI, we are starting out with a vacation rental, a tiny house which will be located on the farm property, but we hope to also move into buy & hold.

I am also concerned with asset protection for our land if someone were hurt here. The combination of hayrides, camp fires, and kids makes this a definite possibility. Should we get the farm and REI business into an entity which would lease the land from us to provide some degree of separation?

What kind of professional could advise us on this? An accountant, attorney, other? If an attorney, what specialty?

Leigh Ann Smith · Answer

Since we have an LLC for the REI business, would it provide any protection if we survey out the parcel of land on which the cabins will sit and have the LLC lease the property from us?

I would imagine that we'd have the normal difficulties with truly keeping the LLC separate from ourselves and having it provide any legal protection.

I'm fine with keeping it as one business and upping our liability insurance if it would help us obtain financing for REI.

Jason Bott · Answer

@Leigh Ann Smith from the insurance perspective, it will be difficult finding a competitive insurance program that is comfortable insuring both. I have a few xmas tree farms insured and I know that all of those insurance carriers would not be willing to have the policy overlap into a real estate biz.

If the RE biz leased back the farm to you as a tenant, that could work. This may be a way to show greater revenue in the RE biz. BUT, you would still need to buy a policy covering you and the tree farm exposures

Teri Feeney Styers · Answer

Look at insurance too = like an umbrella policy. But separating the farm (actual growing of trees) from the hospitality (hay rides, tiny house rental) just seems like a good idea both for legal reasons and tracking reasons - you want to follow as closely as possible where your money is coming from and where it is going...

Combine new REI business with existing business?

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