1. Be honorable and ethical. Treat your tenants honestly and make sure they’re taken care of. Being upfront with them goes a long way. Make sure your contracts are signed properly, the deposits are returned in a timely manner, and anything that needs to be fixed in your units is done so immediately. Simply knowing your tenants elevates your relationship with them to a richer level and can potentially protect you from being sued.
2. Set up an LLC (or multiple LLCs). I, for instance, have seven properties that are owned as part of LLCs. You can assign two properties per LLC, or assign them up to a certain value amount. This way, if you’re sued for one property, an established LLC will act as a legal veil that protects your assets.
3. Set up a HELOC. A home equity line of credit ensures that you’ll have cash reserves if you need to hire legal counsel. If you don’t need them, then no harm, no foul—you’re not paying any interest on them.
4. Set up an umbrella policy with your insurance broker. This way, you can increase the insurance that will cover specific things related to the property. Your insurance company will cover you in case there’s an accident, and you can make sure your property is well-secured.
If you do get sued, it’s imperative that you protect your family. There’s always the potential to lose your business assets, but your family needs to be taken care of first. You can always buy real estate again, but it’s more important to have enough money set aside to take care of your family while the lawsuit proceeds, so have some money saved up or a mortgage that’s paid off for yourself.
If you were found guilty and needed to pay restitution, you’ll obviously want to pay what you can. During this process, though, you can set up a self-directed IRA or Roth IRA to put some money aside for the future that the tenant can’t touch.
If you have questions about protecting your assets or there’s anything else I can assist you with, feel free to call, text, or email me. I’d love to speak with you.