Real estate is one of the oldest and most consistent forms of investing. During these uncertain times, litigation tied to real estate has been on the rise. In addition to the normal risk associated with owning real estate, when economic trouble arises, landlord-tenant disputes also rise.
When investing in real estate, you should always own the property in a
Limited Liability Company “LLC”. The LLC is ideal for insulating
yourself from being personally liable for any potential litigation tied
to the property and likewise it protects your property from any personal
litigation or liabilities.
If you have multiple real estate investments, we highly recommend splitting each asset into its own LLC. This will protect the individual property from potential liabilities from the other properties. If you were to hold all of your properties under one LLC, a lawsuit incurred with one property could put the entire portfolio of investment assets at risk.
For an additional layer of Asset Protection, you should create a holding company to manage all of your separate LLC’s. Having the individual investment LLCs owned by a management company instead of personally adds an additional layer of protection as well as consolidates tax filing requirements.
Some people prefer to protect their properties with liability insurance, but we usually counsel our clients to also own the property in an LLC. Liability insurance is a smart choice but beware of the fine print contained in the contracts. Often times there are many clauses and sub clauses which will deny you coverage. For example, many policies exclude coverage for loss of rent due to a pandemic. Combining the protection of an LLC with liability insurance is the best decision.
Finally, if you have significant equity in your properties you may want to consider equity stripping them. When you encumber your property for 75-80% of its value, you become a less desirable target for potential litigants seeking to cash in on the property’s value. If there is little to no equity available, other lawyers are much less likely to pursue the case.
If you have any property in your personal name or are looking to structure your real estate investments the right please reach out to us for a complimentary preliminary consultation.
The Presser Law Firm, P.A.
6199 N. Federal Highway, Boca Raton, FL 33487