When it comes to having something that will help you make cash consistently you really need to think about what would be the best options for you. Owning real estate properties is an excellent way to generate wealth and earn passive income. However, it comes with its own challenges that can have lawsuits coming your way because of liability.
If a tenant or a guest slips and injures themselves on your property, you could be looking at a costly lawsuit. Real estate owners are a profitable target for lawsuits, so you have to make sure you’re protecting yourself and your assets. There are several ways to protect your assets and yourself and prevent such incidents.
Limited Liability Company (LLC)
You lower the probability of a lawsuit from a tenant or guest by building your real estate assets as an LLC or other corporate entity. An LLC forms a layer of protection on your residential assets against potential lawsuits. This also means that there is no way debtors will come to your home seeking compensation for any issues related to your business. Additionally, you can rent a house you own through an LLC to yourself to minimize any financial risks while reducing the chances of real estate asset seizure.
Keep in mind that you should be aware of any fraudulent practices when you transfer any of your assets into an LLC. If you have multiple rental properties, you can form an LLC for each property instead of having them all in one LLC, and this also applies to commercial real estate properties. You put them into different LLCs so that if an asset is facing a lawsuit, your other properties will be safe. For an extra layer of protection, you can have each investment in a different name to protect your assets if you’re facing a lawsuit.
Anonymous Land Trust
When the owner of a property is anonymous, it offers a challenge for anyone who wants to sue them. With an anonymous land trust you can avoid legal implications on your residential assets. The anonymous land trust consists of the grantor, beneficiary, and trustee. You appoint an entity to be a trustee temporarily until you finish all the necessary paperwork, and then you get to be the only trustee. Basically, your name doesn’t appear on any paperwork, making it hard for any lawyer to connect your trust to the property. Additionally, lawyers get discouraged from pursuing a lawsuit when the property is under an anonymous land trust, as it may cost more than their compensation merely to acquire the name of the trustee. If you use this kind of trust to create an LLC, it will be even more difficult for anyone to file a lawsuit against you.
The most common way to protect your residential property is insurance and it’s essential for every owner. Though it doesn’t protect you from potential lawsuits, it covers some of the compensation if not all. Keep in mind, however, that if the compensation is larger than the insurance is willing to cover, you will have to pay the difference. Insurance protects your assets against catastrophic events and accidents, and according to the professionals behind LoPriore Insurance Agency an umbrella insurance policy is comprehensive and offers increased insurance coverage as your residential assets grow. However, be sure to check for any exclusions. In any case, you should do your research before deciding on an insurance company to ensure you’re getting the best deal. Finally, if your tenants get renters’ insurance, that will cover any personal accidents and also limit your liability. The insurance on your properties comes at a low cost and it is mandatory for all residential property owners.
One of the most affordable options to protect your real estate assets is through debt. Your property, when in debt, won’t be an attractive target for lawsuits or creditors as your property’s equity is trivial. This is beneficial for your business in two ways: it protects your properties and it enables you to pull equity out of your properties and invest it in other projects. To make it even more appealing, the money you get from your equity is considered a loan that is not subject to taxes. Basically, you save money on taxes and earn additional money from investing. However, you have to plan out your strategy well and continuously to avoid any unnecessary incidents. To minimize risk further, you can have your assets under the name of a family member who you trust completely.
Give Your Assets as Gifts
You heard that right. Get rid of your assets if creditors are closing in on you. It’s an efficient way to protect your real estate assets by giving them to a family member or a trusted friend, either directly or through a trust. When the property is not in your name, it’s out of the creditors’ reach as well, and additionally, it may reduce your estate tax liability.
There are a few points you should consider before taking a step like this. You lose control over your estate and any income coming from it. You must make sure the person you’re giving the assets to is not involved in any lawsuit or claims. You should avoid fraudulent conveyance if the transfer of the property will stall or defraud existing creditors. Gifting your assets should be a preventive measure more than a solution to an existing problem.
All you need to do is to plan early and be prepared for any incident that may occur. The sooner you protect your residential property, the more likely it is that you will succeed. All these efforts are made to protect you, your family, and your assets from predators who are looking to take what’s yours in sneaky ways. After applying all these methods to protect your assets, your properties will be much less attractive targets for lawsuits and your name will be hidden, so you will be shielded from personal liability. Finally, make sure your residential property is insured and the insurance coverage is acceptable. If you’re love our articles, you can read How to Make Your Home More Energy Efficient article also. I think it will be get something to your life.