four Nice Methods to Shield Your Actual Property Belongings
Owning rental properties is a great tool for building wealth, residual income and ultimately achieving financial freedom (if that is your goal). Of course, as much as I love it, it’s not without its risks.
One of the biggest risks is liability.
As high-income doctors and professionals, we are aware of litigation and the risk associated with liability. Sometimes it even feels like we have goals on our backs. So we have to protect ourselves.
This carries over to the world of real estate investing. For example, if a tenant or seller tripped and injured on your property, it could be a violent lawsuit. As the owner, you must expect this to happen.
Enter the world of asset protection. When it comes to real estate ownership, protecting assets is a crucial way to ensure that in the event of a litigation (or other disaster) you won’t lose your property, capital, or even personal savings.
There are a few different methods that many real estate investors use. Today we’re going to look at some of the best and most common ways to keep your real estate and other assets safe and secure.
Insurance is by far the most common way to protect your assets and they work pretty well. This doesn’t change someone’s ability to sue you, but it does cover you in this case.
The great thing about insurance is that it’s simple and straightforward. After all, as owners we have to have insurance for our real estate anyway. Just increasing coverage to reasonable limits is a good start.
You’ll likely want to add roof insurance as well. Roof insurance is an insurance that goes beyond your basic insurance. In my opinion we should all have personal guidelines, but when it comes to a rental portfolio we should have these too. It’s surprisingly cheap – and worth every penny.
The only foreseeable problem with insurance is that a lawsuit big enough can exceed your coverage and leave you on the hook for the difference.
Before adding or changing any insurance, it is imperative to compare coverage amounts and get detailed information on exclusions that can leave you high and dry when you need them most. Pay close attention to the fine print on your policy and make the best possible decision.
Anonymity is another high level of protection. Many investors will place their properties in companies that do not publicly list your personal name. This way it is difficult for people to easily identify who owns the property when there is a problem.
Let’s face it, as a doctor with a large number of personal assets, you look a lot juicier for a possible lawsuit.
I’ll talk about LLCs below, but another method is to use an Anonymous Land Trust, which is basically made up of three parts: a Grantor, a Trustee, and a Beneficiary.
This way, the bank (or other institution) will act as a temporary trustee – only until the filing is submitted. After that, you will be listed as the sole trustee.
This can be very useful because if someone decides to sue you, their attorneys will find it extremely difficult to find your name in the context of the trust. This becomes even more difficult when you use that trust to create an LLC (which we’ll get into in a moment).
Basically, an anonymous trust leaves your name out of all associated paperwork, making it virtually impossible for anyone to find you in connection with your property. Of course, it is very difficult not to know who to sue.
Debt is the most cost-effective of all the methods on this list and offers quite a bit of built-in asset protection. If you don’t have a lot of equity, a potential lawsuit can’t take much away.
The basic method is to continuously get equity out of your property and thus invest in other properties or companies. This is effective for two important reasons: First, the money you take out of your equity is a type of loan that is used to buy another property (or whatever it is). This “loan” is not subject to taxes, which is a major benefit.
The second reason is that, of course, without a lot of capital available, you can ensure that you never have much to “lose”. This is a great way to minimize risk, but it does require quite a bit of active strategy development.
I’ve been writing a lot longer post only on this topicIn short, the question of whether or not to convert your real estate into an LLC depends on a few factors.
The main benefit, of course, is that it limits your personal liability. For the subject of this post, this is a pretty big plus.
Using the Anonymous Land Trust method mentioned earlier, an LLC can add an even greater layer of protection. If you designate your LLC as a trustee, your personal name will generally not appear anywhere in the escrow or property records.
The downside is that forming and maintaining an LLC isn’t necessarily the easiest or cheapest way to go. There are also potential loopholes that can result in less protection than you might think.
If this is a good option for you, contact a Lawyer. This will help you avoid potentially costly mistakes and be set up in the best possible way.
Ultimately, when it comes to protecting assets, the most important thing is to find the right strategy for your situation.
This is one of those areas where you hope you never have to take full advantage of the protections you put in place, but you’ll be glad you did if something should happen. It’s too late after an incident.
You have worked so hard to get where you are and you are doing your best to create the ideal life for you and your families. Take this seriously as it is one thing that can quickly damage what you have built.
Risk mitigation is an important factor in a successful property investment and applies to all aspects of the buying process – even if you already own a property. Taking the right steps ahead of time can protect you from a world of headaches.
My friends at Semi-Retired MD are about to sign up for their great Zero To Freedom Through Cashflowing Rentals course for a limited time!
If you join the waiting list, you’ll have access to $ 300 off in just a few weeks when you get started. If you use my link you will get some extra bonuses at no extra cost. Login here!