Whether you are buying rental properties or commercial buildings, asset protection of real property is critical to making money in real estate. It’s a risky business.
Securing the value of real estate assets requires with different strategies to protect the property from several different types of threats. This recent article from Wealth Advisor looks at “8 Reliable Ways to Protect a Real Estate Asset.”
1. Insurance. This is one of the most popular asset protection strategies in real estate. The protection you select for your property depends on the real estate type. You can protect your home with a homeowner’s policy and your commercial property with a business policy. Insurance will protect you against many catastrophic events.
2. Limited Liability. An LLC for rental property can protect your personal assets from potential lawsuits. With limited liability, your home is shielded from litigation concerning your business. One strategy is to buy a house with an LLC and rent it to yourself to minimize financial risks. This will limit the odds of personal real estate asset seizure. However, consult with an attorney to avoid charges on fraudulent practices. You should also place your commercial real estate properties in different LLCs, so if one asset faces a risk, the remainder of your property will be protected.
3. Anonymous Land Trust. You can create an anonymous land trust to avoid legal implications on your real estate property. With a trustee, you don’t need to have your name on records, so putting your house in a trust will protect your investment. This may discourage anyone from attempting to pursue a lawsuit against you.
4. The Titling of Assets. This can also be a great protection strategy. If your spouse is an equal tenant, it provides you with an indivisible interest, so if your spouse is involved in litigation, creditors can’t claim your house because you have an interest. Ask your estate planning attorney about how this works in your state.
5. Protection Through Debt. Debt is an affordable way to protect your real estate property because the available equity is insignificant. The low income may also discourage creditors from going after your property.
6. Eliminating Assets. You can get rid of your real estate asset, if creditors are on your tail. A lawsuit against you can’t affect the property that’s not under your name. Ask your attorney about transferring ownership of the property to irrevocable trusts.
7. Homestead Exemptions. In some states, the homestead laws provide full or partial protection of home equity. If the exemption is high, think about increasing your mortgage payment to promote fund protection.
8. Avoid Risk. You can’t protect against acts of nature. However, you can work with a skilled real estate attorney to review all contracts, do your due diligence in hiring contractors and tenants and maintain your properties to avoid foreseeable risks.
Keep your real estate assets secure to protect your investment.
Reference: Wealth Advisor (November 19, 2019) “8 Reliable Ways to Protect a Real Estate Asset”