As you begin to grow your real estate investment portfolio, one of the most important choices that you will make is how to protect this amazing asset. After all, this is an investment in your financial future and even your ability to retire early and enjoy life. So protecting your investment, your future and yourself should be your first concern.
Liability is a risk that every property owner needs to be aware of and understand. You can be ultra-careful about inspecting your property, making repairs and maintaining the place in great condition, but there are always risks. And after an accident is not the time to discover that you are not in a good place with your insurance coverage. You could be sued for damage to another person’s property, such as a vehicle or even their property that sits next to yours if it was damaged by a fire or explosion from a gas leak just to name a couple potential issues. But far worse than the damage to property, is an injury to a person. This gets very expensive, very quickly. You can be liable for medical bills, loss of income, loss of future earning potential and even pain and suffering depending on the state where the property is located.
Insurance is your number one shield from expenses after an incident at a property that you own. This will pay the damages and even help you to cover the cost of repairing your property. This is the most common way that all property owners, investors, and residents of a property alike, protect themselves from the expenses associated with all types of accidents.
When you want to go a step further and be sure that your personal assets such as your home, your retirement accounts and your savings are protected, you need to consider a trust. This creates an entity that owns the property but does not include ownership of any of your personal property, possessions or wealth. If there are issues that insurance does not cover, the plaintiff who is suing will only be able to sue the trust and not you personally. An LLC is another way to strategically separate your personal wealth and assets from your investment properties. If you only own a few properties, then each one could “reside” in its own LLC, but this can become complex very quickly if you own many properties.