After all, how risky can it really be to update an older unit, make a few improvements, and rent it out?

The reality is that many investors seriously underestimate the legal exposure created by renovation work. The decision to form an LLC shouldn’t be based on the size of your portfolio, but on the type of activity you’re engaging in. Renovations introduce risk, regardless of whether you’re working on one unit or fifty.

If you buy a fully turnkey property where renovations were completed and owned by another entity, much of that liability may sit elsewhere. But if you are managing or overseeing renovation work yourself—even on a single property—the legal and financial risks increase significantly.

Common Legal Issues That Arise During Renovations

Renovation projects introduce multiple parties, contracts, and unknowns. Any one of them can become a legal problem. Common disputes include:

• A contractor or subcontractor is injured on-site and sues the property owner

• A subcontractor files a mechanics lien for unpaid work or materials

• Renovation work causes damage to a neighboring property

• A buyer alleges undisclosed or defective work after a flip

• Vendor or contractor contract disputes escalate into litigation

• Poorly written rehab agreements lead to cost overruns or incomplete work

• Unlicensed or improperly permitted work creates liability after resale

In many cases, the greatest risk isn’t the property itself—it’s the people working on it. Contractors and subcontractors can create liability during construction or long after the project is complete if work fails to meet legal or professional standards.

The more complex the renovation, and the more subcontractors involved, the higher the risk. Even one improperly licensed plumber or installer can expose you to serious legal consequences.

Why Renovation Liability Is Often Hard to Predict

Renovation-related liability is complicated because responsibility is not always clearly defined. Many states impose broad standards such as “fitness for intended use” or “habitability” rather than specific contractor warranties. If a defect is discovered after resale and the contractor’s insurance or warranty doesn’t apply, the property owner may still be held responsible.

Mechanics liens present another major risk. If a contractor fails to pay a supplier, that supplier may place a lien on your property—even if you already paid the contractor in full. In extreme cases, lien enforcement can result in forced property sales to recover unpaid balances.

Multifamily and condo investors face even greater exposure. Owners have been sued over issues such as flooded common areas, improperly renovated lobbies, or structural defects that affect shared spaces. Depending on state law and ownership structure, liability may fall on you—not the developer or contractor.

The real question isn’t “How likely am I to get sued?” but rather “How much complexity and exposure does this renovation create?” Complexity increases risk, even when everything appears to be going smoothly.

How Owning Property in Your Personal Name Increases Risk

When a property is owned in your personal name, any legal claim tied to that property is a personal claim against you. That means your savings, personal residence, vehicles, and other investments may all be at risk.

Many investors assume insurance will protect them, but there are gaps. Premises liability insurance generally does not cover contractors or subcontractors working on your property. Builder’s Risk policies typically cover damage and certain injuries—but not claims from workers who should be insured under their own policies.

Personal liability insurance also does not cover investment-related claims. If something goes wrong during or after a renovation, insurance alone may not protect you.

How an LLC Creates a Legal Firewall

An LLC creates a legal boundary between your personal assets and your investment activity. When renovation contracts are signed between contractors and the LLC—not you personally—any related legal claims are generally limited to the LLC.

This means that if the LLC is sued, only assets owned by the LLC are exposed. Your personal home, savings, and other non-LLC assets are protected. Even if a judgment exceeds the LLC’s assets, claimants typically cannot pursue you personally.

Forming an LLC is relatively simple, but it must be operated properly. Personal and business finances must remain separate. Using LLC funds for personal expenses or failing to follow basic formalities can undermine the legal protection and expose your personal assets.

Importantly, you don’t need partners or employees to form an LLC. A single-member LLC still provides meaningful liability protection when structured correctly.

How LLCs and Insurance Work Together

An LLC does not replace the need for insurance. You still need appropriate coverage for risks such as fire, natural disasters, and accidents.

For example, if you personally are present at a renovation site and a visitor is injured due to your own negligence, you could still be named personally in a lawsuit. That’s why premises liability coverage and Builder’s Risk insurance remain essential.

The strongest protection comes from layering safeguards: proper entity structure, well-drafted contracts, licensed and insured contractors, and appropriate insurance policies.

Why Value-Add Investors Should Always Use an Entity

Value-add projects inherently involve more risk than turnkey investments. More work, more vendors, more contracts, and more time mean more opportunities for something to go wrong—sometimes years after the renovation or even after the property has been sold.

An LLC serves as a critical shield against these “unknown unknowns.” You can’t anticipate every outcome or control every party involved, but you can protect your personal assets from being exposed to renovation-related claims.

For any investor undertaking renovation or value-add work, entity protection isn’t optional—it’s foundational.