During the early years of my real estate investing I ran my business as a sole proprietor because I was confused about asset protection. All the books and expensive courses only added to the confusion, and the subject of asset protection only became more frustrating for me.
Luckily, I survived with only minimal damage, but there comes a point when it is time to assess the best legal structure to use for real estate investing. This becomes increasingly important as your net worth grows.
Consider this scenario. You are sued for an accidental injury that occurred on one of your properties where you held title in your name personally. You are sued for $2,000,000.Your insurance only covers $1,000,000. That's a very bad day.
The biggest mistake you can make in real estate is to hold title on your property in your own personal name. Title to property is public record. Anyone can look up what you own, determine its market value, and deduct what you owe to determine what they can attempt to sue you for. It's like painting a bulls-eye on your back for prying eyes such as attorneys, creditors and even your tenants.
So what entity provides you the best asset protection? How do you limit your liability exposure? [Read more…]