Are Your Real Estate Assets Secure?
Residential properties can produce lucrative rewards for investors, but such investments also bring liability risks. If you’re sued for an occurrence related to your property, such as an accident or even a nonrelated incident, a legal judgment in favor of the plaintiff could wipe our your assets: properties you own, bank accounts, and personal property.
One way to protect your real estate assets and reduce your liability is to set up each of your assets as a legal entity — a limited liability corporation (LLC) — rather than as your personal property. By owning a property as an LLC, you separate the business’s assets and liabilities (its debts, income, and value) from your personal assets and liabilities. This will protect your personal assets (as well as your real estate investments in other LLCs) from plaintiffs’ claims in a lawsuit and creditors.
There are other types of corporations that can protect your personal assets, but the LLC is popular because it limits personal liability and has more flexible management requirements than the others. However, you must set up separate bank accounts for each LLC, and you have extra costs and complexity for tax preparation and accounting.
Also, make sure you carry liability insurance as well as homeowners insurance in case of unforeseen events. Talk with your insurance agent to make sure you are covered properly. With the right asset protection in place, you’ll minimize your liabilities and conserve the wealth you’ve worked hard to build.