Investing in real estate can provide you with an effective way to realize a consistent return on your money. You can either buy properties with the intent to sell them quickly or rent them out for a constant monthly return on your investment. Regardless of what you choose to do with your investment, you need to reduce your liability. How can this be done?
Create a LLC for Each Property
The first thing that you can do is to create a limited liability company for each of your properties. If you were to be sued, the maximum you could lose is however much the home may be worth. This would spare any of your other properties as well as your own personal property. Creating an LLC only takes a few minutes, and unlike other endeavors, you don’t have to pay self-employment tax on your earnings.
Get Landlord Insurance for Each Property That You Rent
A landlord insurance policy will protect you in the event that someone gets hurt on your property or the property is damaged. For instance, if the property is damaged by a fallen tree branch after a storm, you will be reimbursed for the cost to repair the property as well as for any damage done to a tenant’s property.
You may also be reimbursed for lost rent and other costs. In the event that an injury occurs on your property or adjacent structures, your policy will protect you financially in the event that you are found liable for damages. It is important to note that you may be held liable for anyone who gets hurt on the property whether that person is a tenant or not.
Put the Property in a Trust
By putting property into a trust, the trust is considered the owner. This means that you won’t have to give up your home or other property if anything happens while you own a property. If you create an irrevocable trust, creditors may not be able to liquidate or take ownership of the property to satisfy other debts.
However, you also lose control of the property to the trust itself. Before creating a trust or giving it title to your property, it may be worthwhile to consult with an attorney.
In addition to protecting against liability, you also make it easier to transfer the property to future generations after you pass on. Language in the trust could forbid it from being sold by future beneficiaries or used for any other purpose other than generating income.
Investing in real estate has many benefits both today and in the long run. By protecting yourself against liability, you make it easier to keep the property in your family and ensure that returns aren’t being eroded by legal fees and settlement payments.