Straight Rehabbing

2 Replies

I intend to build my investment base on rehabbing. I've recently learned that it's not necessary to incorporate before I begin and it can wait. What do you all think?

The purpose of incorporating is to provide some protection from the liability involved in buying homes, owning them and rebuilding them. Its just a different form of insurance.

You don't have to incorporate.

You don't have to buy insurance.

The question is what kind of exposure you are comfortable with. The risk is hard to grasp until you've actually been maliciously sued. It doesn't happen a lot, but when it does, you don't want your personal assets on the line. At the same time, people take risks all the time to get started. And when you have nothing, you have that much less to lose.

I spent the $200 to form an LLC. I used the Company Corporation and I had my lawyer review their docs (they were fine) and I am meticulously insured. But it is a personal decision. I would ignore people who preach on this topic. Risk is a personal thing.

There are some tax issues as well. When I started out, my rehab was the only house I owned, so I could actually get the homestead tax break and get a lower capital gains rate when it sold. When you incorporate, the house will not keep the homestead status. The tax rate is higher when you sell a home as a schedule C business versus selling it as a home. However, there are more deductions. If you incorporate, you can write off many things, like the books you buy, the miles you drive, the electricity bills, etc. (verify with an accountant).

Incorporation does provide some liability protection, but so does insurance (up to policy limits of course). If you have significant assets, it's not a bad idea.

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