Landlords spend a lot of time, money, and energy to build a strong portfolio, but some don’t have the right measures in place to protect their assets. If you don’t have the right safeguards, you’re putting your investment at risk. To help, here are six strategies you can use to protect your real estate investment.
Form an LLC
To protect your investment from potential lawsuits, you can form individual LLCs for each rental property that you own. LLCs prevent owners from having to take personal responsibility for debts that accrue, meaning the personal assets of the investor can’t be pursued. In doing so, you can protect multiple properties at once, as creditors are typically only limited to one asset in an LLC.
Utilize Landlord Insurance
Insurance is one of the most common tactics landlords use to protect their assets. Typically, real estate investors use a homeowner’s policy to protect residencies. Having an insurance policy can protect your investment by preventing losses due to property damage, loss of rental income, and liability issues such as court or medical fees.
Use Risk Avoidance Tactics
As a landlord, you want to ensure you’re covering all your bases to protect yourself from litigation or income loss. For example, you can ask repairmen if they have proof of insurance to avoid potential tenant injury and medical bills. You can also utilize tenant screening processes, such as credit screening and background checks, to make sure that the tenants you take on are responsible and won’t harm your investment.
Hold Property in a Real Estate Trust
Putting your property in a real estate trust gives you a certain level of anonymity. When a property is in a trust, lawyers can’t connect the trust to your property, making it harder to go after your property and assets. Additionally, if the property has multiple owners, the asset has other individuals to fall back on if one owner should fall into legal or credit issues.
Use Strategic Debt
Strategic debt, often referred to as equity stripping, is a common tactic landlords use to protect their assets. When a landlord owns an asset that’s worth quite a bit of money, it can become a huge target for lawyers. If you strip out the equity, the potential amount of cash to lose decreases significantly. Ideally, it will make your property seem worthless to lawyers or creditors.
Utilize Homestead Exemptions
When creditors seek to claim your investment, you can use a homestead exemption to declare bankruptcy in order to have some form of equity protection. Depending on where you live, some states can provide partial or full home equity protection. Homestead protections only apply to primary residences, but you can register a property as a homestead.
Implementing one or more of these strategies to protect your real estate investment can save you a lot of time and money. To better protect your investment, Excalibur Homes can help you work with a rental broker in Atlanta that will take care of the tenant screening process for you and help you avoid unnecessary risk.