Why it is important for a real estate investor to have an operating agreement.

1. REDUCING A REAL ESTATE
INVESTOR'S LEGAL EXPOSURE
The Importance of Having an
Operating Agreement
BY DAVID SOBLE

2. FORMING AN LLC
FORMING AN LLC
Real estate investors should consider
forming a limited liability company
(LLC). An LLC allows for simple tax
reporting at the owner's expense and
limits the owner's legal exposure and
financial risks.
An LLC is meant to be a separate
legal entity from the owner.
Therefore, the owner needs to create
an Operating Agreement.
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3. IMPORTANCE OF AN OPERATING AGREEMENT
THE IMPORTANCE OF AN
OPERATING AGREEMENT
An Operating Agreement defines a
business' financial and management
rules by which the company functions
on a day to day basis.
It reduces a real estate investor's
financial risk and legal exposure.
Without one, less favorable state default
provisions will be applied to a company.
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4. Top 3 Reasons a Real Estate Investor
Needs a Properly Drafted Operating
Agreement:
1. DEFINES MEMBER AUTHORITY
2. PROVIDES FOR SUCCESSION OR INCAPACITY
3. ALLOWS FOR PROTECTION FROM CREDITORS
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5. 1. DEFINING MEMBER AUTHORITY
a. It is crucial to define which member has the authority to sign documents
and legally bind their company.
b. Agents and lending institutions will want to know who has the authority
to endorse loan documentation or sign deeds.
c. Having an Operating Agreement also helps prevent fraud and bad actors
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6. 2. PROVIDING FOR SUCCESSION OR INCAPACITY
Agreements should include provisions detailing how the company will
be managed in the event of an owner's incapacity or death.
Absence of succession provisions can prevent the disposition or sale of
property or impact the company's daily operations.
State default provisions will be invoked without a succession plan.
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7. 3. PROTECTION FROM CREDITORS
An Operating Agreement can protect
a company against having it's assets
attached to an individual member's
creditors.
For instance, if a creditor obtains a
personal judgement against a
member, the right contract
provisions will prevent the creditor
from attaching or liening a member's
corporate interest.
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8. ABOUT THE AUTHOR
Since 1990, attorney David Soble has
represented lenders, loan servicers, consumers,
and business owners in real estate , finance, and
compliance matters. For over 25 years, he has
been involved in thousands of real estate
transactions and has successfully negotiated
and saved millions for his business and
consumer clients
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DSOBLE@PROVENRESOURCE.COM
31800 NORTHWESTERN HWY.
SUITE 350
FARMINGTON HILLS, MI 48334
PHONE: (888) 789-1715
ABOUT THE AUTHOR