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Be Careful Out There

by  Randy King  on  Friday, September 15, 2017

I’m on a safety and protection kick this month, so going to roll with it.  This time, let’s talk more about liability protection for your awesome rehab.  This is especially poignant right now because it’s a little difficult to find general contractors (they’re all booked solid), so the natural instinct is to find anyone that can fog a mirror while operating a worm-drive Skilsaw.

I know, I’ve been there.  It’s frustrating, the clock is ticking on your rehab and you can hear the money flowing out of your pocket into your private lender’s.  Not that you don’t just love your private lender to death, it’s just that you want to get on with the next one and keep things moving, right?

Here’s the potential problem with hiring Ted & Ed’s Most Excellent Carpenters, Inc. for your project.  You may have scored a good new find for your projects, but each and every time that you get a new contractor on your projects, acting as a general or a specific trade, you have to check a couple of things.

First, make sure that YOU write the contract between you and your contractor(s), otherwise the terms will all be in favor of the contractor.  If S/he refuses, hard as it may be, you should walk.  You have not experienced pain as difficult as having your contractor not showing up on your job site because s/he has taken on other jobs along with yours and there’s no contract language.  Tick-tock on that private money.

That’s a whole world of discussion and exploration to talk about contractor agreements; we spend an entire class session discussing it in our REI Blueprint Course.  But the one thing that you must have and must follow-through on is your contractor’s liability insurance or bonding, along with that of the subs.

The best first step to get this assurance is that your agreement makes it clear that your relationship is an arms-length 1099 sub-contractor arrangement, and that no one is your employee.  Then you must act in this manner – you can’t go buy materials and drive them to the job site.  This is a no-no and can constitute an employer-employee relationship if things go bad and lawyers get involved.

Secondly, you need to require (a) proof of Wisconsin licensure as a Dwelling Contractor, and you can check this yourself at the DSPS website at https://app.wi.gov/licensesearch.  You should also require that your contractor provide a copy of his or her liability insurance for your project files.  Make sure that you check the expiration date.

Wisconsin requires that Dwelling Contractors show proof of insurance or file a $25,000 surety bond with the state as proof of financial security.  Your best bet is to require that liability insurance certificate, because a surety bond will not do much good if someone falls off the roof and breaks a leg.  When that happens, people tend to sue everyone in sight, and you need to be protected from that.

This also calls into play how your company is organized and the protections that you have set up, including your own liability insurance.  If you’re in an LLC (typically recommended), be sure that the operating LLC for your rehabs is not the same company that’s holding any rental properties, or they are potentially exposed to reach-through liability if something happens in the rehab company.

As always, I’m not a lawyer or an accountant and, even though I’ve seen them on T.V., I wouldn’t dare advise you on what to do except to tell you to go get a good attorney and accountant to set all this stuff up for your company or companies.

If you’d like to find out more about all this stuff, drop in on our Real Estate Investor Blueprint informational dinner meeting on September 20th where we talk about the topics that we cover.  Go here for information:  REI Blueprint Intro

 

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