Investing in real estate is an excellent way to generate passive income which will help you achieve complete financial freedom. However, this business also has its risks, which are mainly grounded in liability and other factors. There are different measures you can take to safeguard your assets. Keep on reading to learn more about how to protect your properties from financial damage when you operate as a real estate investor.
Insurance is the most common method used by real estate investors to protect their properties. For instance, when you get landlord insurance, you will get liability coverage to protect you from lawsuits emanating from injuries that occur on your property. The costs that can be covered by your policy include medical fees, loss of income, emotional pain, funeral costs, and legal fees.
Your policy also covers property damage caused by fire, theft, or natural disasters. Renters insurance can also cover loss of rental income if the landlord does not receive rent as a result of repair work in progress following damage to your property.
Appliances and fixtures in your real estate will undergo wear and tear over time, and they will need repairs in the long term. Therefore, you can consider warranties for homes since they are designed to give you peace of mind when your appliances are in need of repair. The warranty providers will handle everything on your behalf.
Limited Liability Company
A Limited Liability Company (LLC) is an effective strategy you can consider to protect your real estate properties. When you form an LLC for your rental property, it becomes a legal business entity. As a result, your personal property is protected from claims by creditors.
Real Estate Trust
Holding your real estate property in trust makes it difficult for the creditor to discover the real owner. This will save your property from being liquidated to service unpaid debts. Establishing trust is also advantageous in estate planning since you can name beneficiaries therein and avoid the probate process altogether. It is pretty simple to register your property in a trust.
To protect your real estate, you should minimize risk. You can achieve this by carefully screening prospective tenants and selecting only trustworthy people. You should also hire contractors with insurance to reduce the risk of lawsuits. If the workers are injured at your property, and the contractor is uninsured, then you will be responsible for paying their medical bills.
You can register your property as a homestead to protect it from creditors. In some states, homestead properties often get unlimited protection value. However, in other areas, there are statutory limits.
If you are a real estate investor, you need to choose the ideal combination of strategies to protect your properties from liability, lawsuits, and creditor claims. The common strategies used by most investors include purchasing insurance, obtaining home warranties, and reducing risk. Opening an LLC or registering your real estate under trust can provide an additional layer of protection to your investment.