Real Estate Asset Protection

Real Estate Asset Protection


By Kelly Bagla, Esq.

Real estate asset protection is a strategy investors can use to protect their finances from unexpected blows, including lawsuits. While real estate can be a great asset to your portfolio, it does not come without risks. The biggest risk is the risk of a lawsuit.

If you are wondering how to protect property from creditors, creating a real estate asset protection strategy might be the solution you need. The best way to protect assets is to plan ahead. You want to structure your real estate assets in a way that hides ownership, minimizes equity, and protects your best interests.

Here are a few real estate asset protection strategies:

More likely than not, you probably have purchased real estate in your name, and you probably hold the title to that real estate in your name. This means if you are personally subject to a lawsuit, all of your assets, including the real estate will be open for grabs by creditors. By creating an LLC for each real estate asset to separate your liabilities will prevent legal troubles with one asset from interfering with another asset in your portfolio. It is equally important to consider which state to form the LLC in so you have the best legal protection available under law.

Carrying debt on your real estate assets through a mortgage or a loan can have its benefits. By stripping equity in your real estate portfolio through borrowing against the portfolio could potentially deter third parties from suing and reduce the number of lawsuits you receive. A lawsuit might be more appealing to someone if you own a property outright without a mortgage or a loan. Getting rid of this equity and maintaining a 75% loan to value ratio reduces the funds available through your assets or LLC. You can also use the stripped equity to further your investments by purchasing other properties or land.

Creating or forming a management company to manage your real estate rental properties is a crucial part of asset protection. Even if you have a third party property management company managing your rentals, this third party property management company can enter into a contract with your management company whereby your management company will take on 100% of the liabilities, as and when they arise. Since your management company does not own any real estate, it can afford to be sued.

A landlord specific insurance policy protects you in the event one of your tenants is injured on the property. This could help you cover the associated costs of medical bills, lost wages, and legal/court fees, all of which could end up costing you hundreds and thousands of dollars, not to mention the loss of your real estate property. Landlord insurance is typically affordable, and this should be your place to start when creating a strategy for real estate asset protection.

A homestead exemption can help protect property by making it unavailable to creditors. The downside of a homestead is you are required to live on the property to qualify in most states. This might be an option if you inherit a fully paid off property that you intend to inhabit.

A comprehensive real estate asset protection plan that caters to you and your assets is the best option. Regardless of which strategy you choose to protect your real estate assets, it is imperative that you create a plan before investing, and especially before you rent your property out to tenants. If you already have a portfolio of real estate assets, consider your protection strategy options before it’s too late. Asset protection for real estate investors is an important part of any strategy.

If you need help determining the best real estate asset protection strategies, we can help. Becoming a business owner, you control your own destiny, choose the people you work with, reap big rewards, challenge yourself, give back to the community, and you get to follow your passion. Knowing what you’re getting into is smart business because the responsibility of protecting your business falls on you.

For more information on how to legally start and protect your business schedule your consultation here https://baglalaw.com/contact.

Disclaimer: This information is made available by Bagla Law Firm, APC for educational purposes only as well as to give you general information and a general understanding of the law, and not to provide specific legal advice. This information should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.