You’ve worked hard to build up your real estate portfolio and now you want to protect it. There are both known and unknown risks when it comes to owning property. How do you make the right choices when it comes to asset protection and limiting your liability particularly in today’s litigious society?

What’s at risk?

If you have a large portfolio of real estate and you haven’t set up protections, both personal and business assets can be taken from you if a lawsuit finds you liable. That is a scary proposition. Fortunately, there are ways to protect your personal possessions and real estate assets from liability as a real estate investor. Here are a few to consider.

1. Setting up series LLCs (Compartmentalization) This involves separating your real estate assets from each other and from your personal assets. An LLC basically acts as a boundary around your asset. This prevents judgments or lawsuits against a single LLC from being taken from another. Advantages of LLC’s in addition to the asset protection, include tax advantages as they are treated as a pass-through entity.A disadvantage of LLC’s, especially if you have a large portfolio, is the extra paperwork in setting them up and filing the taxes on each LLC. It can also be time consuming to obtain all of the necessary documents from the county where the property exists when you are first setting the LLC up.

2. Always consider liability insurance to be a component towards the protection of your real estate assets. It is important to go for a liability insurance policy that meets your goals and future intentions. Insurance can add a layer of protection to real estate investors from liabilities such as fire, accidents and natural calamities. A disadvantage or limitation of insurance is that claims can be rejected and policies have exclusions and loopholes.

3. Setting up shell companies. A shell corporation acts as the face of your business but it actually owns no assets so there is nothing for the lawyers to go after if your shell corporation is named in a suit. The legal aspect of shell companies enables you to keep both your business and personal assets as separate entities. Consequently, it legally obscures your personal networth which helps to deter law suits.

4. Setting up anonymous or land trusts.These trusts consist of three parts. They include trustee, beneficiary and the grantor. As the name implies, the owner of the property remains anonymous which helps to protect you in the case of a lawsuit.

Conclusion

There are many options available to real estate investors to help protect assets and limit liability. Choose the one that is best for you based on your needs and future intentions. Always consult your legal and tax professionals.