i currently own 6 buildings, they are all in my name, what should i do to protect myself? when i bought i tried buying in the name of my llc but the lender would not do this. what do i need to do incase a tenant hurts theirselves, i dont want to lose all my properties.
First thing you do is make sure you have adequate liability insurance on each rental property as your first defense against a lawsuit. Then purchase a large enough umbrella policy to cover the probable judgement should you be sued and lose on appeal.
Second thing you do is make sure you don’t create a situation that may result in a lawsuit. Take care of maintenance issues as soon as you are made aware of them. Treat everyone equally and fairly. Run your business professionally. Have written standards and follow them. Create a buffer between you and your tenants by using professional property manager(s).
Lastly, if you have significant equity in your personally owned assets, consider a business entity (LLC) for the asset protection features it provides. Don’t create a business entity until you have had a conversation on this point with your attorney, your tax professional, and your estate planning advisor.
You may hear horror stories about tenant lawsuits gone wrong but the reality is that landlords who maintain their properties, treat their tenants fairly and equally, and operate their business professionally, don’t get sued very often. If sued and they lose, the judgements are usually covered by their insurance policy limits. Personal injury lawyers usually take the path of least resistance and sue for the insurance policy limits hoping for a quick, out-of-court settlement (and the quick payoff on their contingency fee).
Don’t take my comments as a slam against the business entity. At some point in time, when your personal net worth is large enough, it makes sense to establish one or more business entities for an extra layer of asset protection. I am not against business entities. I just don’t think they are necessary for every beginning investor if asset protection is their only concern.
I am sure that someone will bring up the risk of being sued personally for something unrelated to your rental operations such as the slip and fall on your front porch, or the auto accident where you are at fault. Business entities, trusts, and separating ownership of safe and dangerous assets between you and your spouse are all key components of an all emcompassing estate plan that minimizes estate taxes, avoids probate, preserves the tax benefits of investment property ownership (capital gains tax treatment, stepped up basis, and eligibility to participate in 1031 exchanges), facilitates an orderly transfer of wealth to your survivors, and also provides some measure of asset protection.
My point is that asset protection is important but should not be the sole consideration when you are doing something to “protect yourself”, probably should not even be the primary consideration.
In summary, most landlords never get sued. All landlords have to face death and taxes. Protect yourself accordingly.
The LLC won’t save the property. Equity stripping/harvesting is more appropriate. I can’t emphasize enough what Dave has already said already. Review your situation with an attorney, your tax expert, and your estate planner. Whatever you decide to do must be done with your whole situation in mind.