When it comes to investing in real estate, protecting your assets is the name of the game. As such, each property will present its own set of challenges and require different protection strategies.
If you are looking for ways to protect your real estate investments, you’ve come to the right place. Here are some steps that you can follow to ensure that your investments hold their value for years to come.
1. Consider The Risks
Risk is an inherent part of real estate investing. However, there are situations where it is better to pay the extra money and sidestep any risk altogether. It is much easier to carry out due diligence than to be drowning in legal battles. Make sure to read and understand the contracts you are signing, and consult and work with seasoned professionals. Don’t trust crucial work to someone who doesn’t have the credentials.
2. Form a Limited Liability Corporation
Forming a Limited Liability Company (LLC) for your rental property can shield your asset from lawsuits. In the industry, this is referred to as compartmentalization. You could purchase a house with your LLC and then rent it to yourself. This means that creditors would not be able to seize your home to settle personal debt because it would be your LLC’s asset.
Additionally, you can purchase multiple properties with different LLCs. Doing so shields your other assets should one be subject to risk. If you opt for this strategy, make sure to consult a lawyer in regard to asset transfers so that you don’t inadvertently engage in fraudulent activity.
Don’t Put Multiple Properties Into the Same LLC
New investors will sometimes put multiple properties under a single LLC. This is not recommended as a viable asset protection strategy, even if there is supposedly little risk involved. Imagine if you adopt this strategy, and a lawsuit is filed against one of your properties. Now all properties under that particular LLC are vulnerable.
Fortunately, you are allowed to have multiple LLCs. If structured properly, you shouldn’t have to file taxes for each individual property. So if one of your properties contains a higher risk of liability than the others, consider setting it up with its own LLC.
3. Get The Right Insurance
Purchasing insurance for your real estate properties is a common protection strategy throughout the industry. Whether you opt for a homeowner or business policy depends on whether you are trying to protect your home or commercial properties. However, keep in mind that your coverage amount will need to increase in proportion to your portfolio. If you already have a large portfolio, it may be advantageous to consider an umbrella policy.
4. Consider Land Trusts
Land trusts are designed specifically for real estate assets and can be advantageous, provided you follow certain steps. It is important to remember that land trusts in and of themselves will not protect your assets. They are revocable trusts, meaning you could still technically be held liable in the event of a lawsuit.
If you are looking for something to merely hold your real estate, then a land trust might be the way to go. They are a popular option amongst investors, as they are essentially a securities safe that contains instructions for how the property can be encumbered, leased, or sold.
Questions About Real Estate Law?
If you have questions about insurance for your properties, consult a qualified real estate insurance professional. If you require legal advice, Merlino & Gonzalez is committed to serving the Staten, NY, area with the utmost diligence and professionalism. Reach out and schedule your consultation today.