How to Protect Your Real Estate Investment
As a real estate owner, your property is your biggest investment. The last thing you want is any of your assets to be destroyed by unruly tenants, natural disasters, or any other unfortunate occurrences. While being a landlord can be an extremely rewarding experience and provide you with a great passive revenue stream, there are risks, which is why you want protection. Keep reading to learn how to protect your real estate investment with these four tips.
Run a background check
One of the first steps you should take as a landlord is running background checks on your tenants. Taking preventative measures and ensuring your tenants are trustworthy people is essential. A background check can uncover a lot of pertinent information, such as an eviction on credit report and previous criminal charges. Other key information a background check can bring to light includes:
- Prior addresses
- Work history
- Credit score
- Sex offender registry
- Education history
In addition to running a background check, other preventative measures include contacting landlord references to hear their experiences, hosting interviews with prospective tenants, and posting your listing online to receive a larger pool of applicants to choose from.
Get real estate insurance
The sole responsibility of insurance is to secure your property in the event something gets damaged. As a landlord, it’s always best to choose a comprehensive insurance plan for your property, whether commercial or residential. After all, you want to protect your properties at all costs after paying off pricey mortgage payments.
The larger the portfolio you have, the more insurance coverage you’ll need. In this case, you might want to consider an umbrella policy for comprehensive insurance coverage, which can protect you from natural disasters, damage from tenants, and other catastrophic events.
As you research different insurance plans, speak with an insurance professional who will discuss the properties you have, the costs and features of the coverage, and other important details to ensure you’re paying a fair price and getting enough protection.
Create an LLC
In the event something happens on your property where a tenant or visitor is injured, you can face serious consequences from the lawsuit. Your personal assets can be stripped away, leaving you with nothing. To prevent this from happening, you can structure your rental property business as a Limited Liability Company (LLC), which can allow you to manage the risk from inside liabilities, such as lawsuits.
To create an LLC, you can work with a freelance business lawyer or file by yourself. Once you establish your LLC with your lawyer, it will be able to protect your personal assets from potential lawsuits brought on by tenants or visitors. Having an LLC also protects your own home from debtors asking for compensation for any issues incurred by your business. In events like these, your business will be responsible for paying any costs, not you personally.
For landlords with multiple properties, it might be wise to form separate LLCs for each property. This way, each one can operate as its own LCC with its own liabilities, which can protect each property from each other.
Place your real estate property in an anonymous land trust
Putting your rental properties in an anonymous land trust is another way you can protect your real estate investments. When placed in an anonymous land trust, there will be a grantor, trustee, and beneficiary, and you won’t be required to put your name on any records. In the event of a lawsuit, lawyers won’t be able to connect your trust to your real estate property. This is a great protection layer because tenants, visitors, or other entities trying to sue you will have to pay large sums of money to find your identity before even going ahead with a lawsuit.
Being a landlord is a lot of work. Not only do you have to maintain your property, deal with tenants, and manage your finances, but you need to ensure that all of your hard work is protected in the event of a mishap, such as a natural disaster or lawsuit. Fortunately, there are plenty of ways you can protect your personal assets from your rental property to ensure you’re protected. From taking preventative measures like screening tenants to placing your property in an anonymous land trust, these are just some of the measures you can take to protect your real estate investment.