Real Estate Investors buy insurance to protect their property from loss, but if you stop there, you could still lose if you don’t protect your assets.
Attorney Scott Smith is the principal at Royal Legal Solutions, a law firm specializing in working with real estate investors.
Insurance is a good first step to protect you from loss when you are first starting out. Once your portfolio grows and you have multiple properties, and significant equity, there are additional asset protection steps you need to take to protect yourself from loss.
Insurance vs Asset Protection
Insurance protects you from negligence. If you are sued for more than the insurance you have, the balance owed can be taken from your assets. If you lose it all, how long will it take you to recover?
Rule #1, don’t lose capital. Getting a poor return is far better than losing capital. If you lose capital, it can ruin you.
Insurance is inexpensive. Don’t skimp on insurance.
Protect Your Assets
Asset protection is not a singular event. It’s a plan that provides protection that creates separation between your investments and from your personal wealth. This structure isolates properties and the operation from you. It’s a way of creating moats with alligators and drawbridges to protect your castle.
Work with a legal professional to create a structure that will provide you the appropriate protection for your investment strategy. Your plan will likely include creating an LLC. When creating an LLC, consider the state you file it in. Certain states provide significantly more protection based on the charging order, compare CA vs TX.
If you do it right, you can compartmentalize your properties and protect them from actions at other properties, and hide your personal information from the ability to be found.
“If you have more than $50k in assets and equity, spend the money to protect your assets.”
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