Fluctuating property values are just one of the risks associated with real estate investment, and not among the most serious. If an investor takes a loss on a piece of real property, the loss is limited to his direct investment in that property—the cost of the purchase, taxes paid, improvements and other expenses.
The most significant risks for real estate investors are those that reach beyond an individual piece of property. For example, an investor who owns multiple pieces of property in his own name could lose all of them if a serious personal injury occurs in one building. Worse, his personal holdings, including his own home, could be at risk. Placing real property in a single LLC can shield the investor’s personal property and protect him from personal liability, but may leave multiple properties exposed to liability for an incident involving only one house or empty lot.
Just as liability for issues associated with investment property can threaten the investor’s personal holdings, the investor’s personal liability can put the property at risk. If the investor holds investment real estate in his own name, or in an LLC that he owns, those assets are fair game in any collection action against the investor. Thus, debt entirely unrelated to the properties, such as liability for an automobile accident, can jeopardize the business. Placing the LLC that holds the property into an irrevocable trust is one common strategy for insulating the investment property from the investor’s personal liabilities.
Fortunately, a well-prepared investor can structure his holdings in a way that prevents liability associated with one property from spilling over onto another, protects his personal assets, and minimizes the assets at risk in any business situation.
Some of the most effective asset protection tools for a real estate investor include:
- The use of LLCs to segregate properties, preventing liability from reaching other properties or personal holdings
- Placing ownership of the LLCs in one or more trusts
- Minimizing equity in the property to make it an unattractive target for creditors
The best way to protect a real estate investor’s assets will depend on a variety of factors, including his personal assets, whether his investments are limited to a single state or are spread around the country, how much equity he has in each of the properties and in the aggregate, and more.
The experienced asset protection attorneys at Milvidskiy Law Group P.C. understand the specific risks that real estate investors face, and can help to assess the best way to manage your assets and investments to protect yourself, your family’s future, and your holdings from avoidable risk. You’ve made the investment in seeking out properties, doing market research, purchasing assets, and improving properties—you owe it to yourself to invest in protecting what you’ve built.