A Guide to Real Estate Asset Protection

Are you searching for how to protect property from lawsuits? The process of structuring your real estate assets to minimize your liability is referred to as real estate asset protection. Learn how to protect assets, including single or multi-property investments. Then, consider reviewing your strategy with an estate planner who can help you maximize your financial assets.


Real Estate Asset Protection Key Takeaways

  • Real estate asset protection is the process of creating a strategy to limit your liabilities and structure your assets.
  • Landlord insurance can help you cover the costs associated with tenant or contractor injuries.
  • Separating your liabilities into an LLC can protect your personal finances.
  • Filing an anonymous real estate trust makes it difficult for creditors to find you.
  • Equity stripping can make lawsuits less appealing to fraudulent claimants.

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What Is Real Estate Asset Protection?

Real estate asset protection is a strategy investors can use to protect their finances from unexpected blows, including lawsuits or creditors. While real estate can be a great asset to your portfolio, it doesn’t come without risks. One of these risks is a lawsuit. Most lawsuits lead to some type of payout, whether you agree to a settlement or you’re ordered to pay a judgment.

If you’re wondering how to protect property from creditors, creating a real estate asset protection strategy might be the solution you need. The best way to protect assets is to plan ahead. You want to structure your real estate assets in a way that hides ownership, minimizes equity, and protects your best interests. After all, you invest in real estate to profit, and a single lawsuit could cut your profits significantly.

Why Do You Need Real Estate Asset Protection?

If you have a personal interest in a real estate investment, real estate asset protection services are for you. Creating a plan that protects your investment ahead of time can help shield you from creditors or lawsuits. Otherwise, an injured tenant or unpaid creditor could force you to liquidate to cover the costs.

Even worse, the liabilities of one property could potentially carry over to others. If you own multiple properties within your real estate portfolio, a lawsuit involving one of them can threaten the liquidity of the others. Even if you own just one property, a lawsuit could affect your financial stability, including putting your home or bank accounts at risk.

Real Estate Asset Protection Strategies

If you’re looking for tips on how to protect your house from lawsuits, we have a few strategies for you. The best way to protect properties is to create a plan designed specifically for your financial situation. Consider these real estate asset protection strategies:

Invest in Landlord Insurance

While you probably have homeowner’s insurance on your property, it might not protect you from injured tenants. A landlord-specific insurance policy protects you in the event one of your tenants is injured on the property. This could help you cover the associated costs, including medical bills, lost wages, and legal and court fees, all of which could significantly cut into your revenue potential. Landlord insurance might also help cover liability claims from contractors or others authorized to work on the property.

In some cases, insurance might also cover damage to the property, a loss of rental income, or the replacement of your or your tenant’s personal belongings. Think of a landlord insurance policy as an extra plan that covers your expenses as a property manager rather than a homeowner. Landlord insurance is typically affordable, making it a great place to start when creating a strategy for asset protection real estate.

Separate Your Liabilities

Without creating a separate limited liability company (LLC), your real estate property is likely tied to your financial interests. This means if you are subject to a lawsuit, the filer might come after your personal assets too. An LLC is a business entity that owns the property in place of personal ownership. This separates your assets from your personal risks and liabilities.

We recommend creating a separate LLC for each real estate asset to separate your liabilities. This prevents legal troubles with one asset from interfering with another asset in your portfolio. When you file your real estate asset in the LLC’s name, creditors can only seek funds available through the holding company. They cannot come after your personal assets to fulfill a lawsuit.

An LLC can also protect you from creditors. As long as you hold each separate entity in a different LLC, debt from one won’t affect the others.

File a Real Estate Trust

Placing your asset in a trust is a good idea if multiple people own the property. Moving your real estate assets to a trust also helps protect your loved ones by allowing any named beneficiaries to skip probate.

An anonymous trust hides your identity from the public. Instead of filing the asset under your name, you use a designated trustee to do so on your behalf, meaning your personal information is never in the legal records. Also known as privacy of ownership, this process involves establishing a land trust for each property. As long as you’re the beneficiary of the trust, you’ll continue to maintain control.

Open a Shell Company

A shell company is a legal way to separate your assets from yourself. A shell company might include an LLC filed under an anonymous trust. An LLC is better suited for a single real estate investment, whereas a shell company might be a good strategy when you own multiple properties.

A corporate shield makes it so only the specific asset is subject to legal liability. While an LLC might be the most popular type of corporate shield, it’s not the only one available. Other options include a corporation or limited partnership. It’s usually a good idea to work with an estate planner when setting up a shell company to ensure it’s done in a way that is accurate and legal.

Use Debt to Your Advantage

Carrying debt on your mortgage — even with real estate assets — can have its benefits. Equity stripping could potentially reduce the number of lawsuits you receive. Setting up a separate LLC and using it to strip away equity in the property makes a lawsuit less desirable for someone to pursue.

A lawsuit might be more appealing to someone if you own a property outright without a loan. Getting rid of this equity and maintaining a 75% loan-to-value ratio reduces the funds available through your asset or LLC. You can also use the stripped equity to further your investments by purchasing other properties or land.

Minimize Risk

Minimizing risk is an important part of asset protection for real estate. Careful tenant screening and credit report checks can help you choose the best renters. Reviewing and calling applicants’ references can also help you decide which renters should live on your property.

It’s also important to note that real estate assets can be exposed to liabilities when hiring contractors. Screen any workers or contractors who perform work on the property carefully. This includes checking references and validating proof of insurance.

File a Homestead Exemption

A homestead exemption can help protect property by making it unavailable to creditors. The downside of a homestead is you’re required to live on the property to qualify in most states. This might be an option if you inherit a paid-off property that you intend to inhabit. Homestead exceptions were put into place to protect people’s homes from lawsuits.

The best strategy for protecting your assets is a combination of multiple methods. Landlord insurance is always advisable to protect you from certain liabilities. Structuring your real estate assets as an LLC or under a shell company can add additional layers of protection. Either way, start by discussing your assets and liabilities with an estate planner.

Real Estate Asset Protection and Tax Planning

Tax liabilities are also important when choosing a real estate asset protection strategy. All real estate assets are subject to taxes, regardless of filing status or ownership entity. However, owning real estate assets through an LLC or a limited partnership does give you more control over how you pay taxes. Estate planning also includes a review of tax liabilities, which can help you choose the best strategy.

How To Protect a Rental Property From Lawsuit

A comprehensive real estate asset protection plan that caters to you and your assets is the best option. Regardless of which strategy you choose to protect your real estate assets, it’s crucial you create a plan before investing. If you already have a portfolio of real estate assets, consider your protection strategy options before it’s too late.

Asset protection for real estate investors is an important part of any strategy. Need help determining the best real estate asset protection strategies for your financial situation? Protect property from creditors and lawsuits by scheduling your wealth planning blueprint call today. Whether you’re considering investing in real estate or you already have an established portfolio, real estate asset protection should be part of your strategy.