With bargain-priced properties and record low interest rates, today's real estate market presents tempting investment opportunities — including new openings for the first time investor.
Owning investment properties can be an exciting and lucrative decision. However if you're considering an investment in real estate (whether a vacation rental, long-term rental, or for re-sale), be aware that these properties can also create liabilities.
For example, a tenant might trip on a wobbly staircase. A guest could slip on an uneven sidewalk. Faulty electrical wiring causes a fire or shocks a tenant. A clogged chimney leads to a flue fire. Or a slow leak might result in mold that affects a tenant's health.
Accidents happen. And when tenants, guests, or their invitees are injured on a property, victims can sue the property owner for damages.
Without the proper liability protection, you – as the property owner – are personally liable for any damages. Let's say you researched the market, purchased a foreclosed property in Florida and turned it into a promising vacation property. A guest falls from the balcony (faulty railing) and the court awards a multi-million dollar judgment to the plaintiff (worst case scenario, I know…).
Without the right protection, the defendant in the case is you. And your personal bank accounts, stocks, other properties are all vulnerable to cover the settlement award. What may have started out as a savvy investment for your retirement or child's college fund can end up wiping out all of your hard-earned savings.
I don't particularly like using scare tactics and in no way do I want to discourage anyone from considering an investment in real estate. However, I do want to prevent new investors from falling prey to what could have been so easily avoided in the first place.
In a series of posts to come, I'll guide real estate investors through some of the keys to limiting liability and protecting their assets – including covering the basics of the Limited Liability Company (LLC). Real estate investing doesn't have to be such a scary prospect; and a few simple steps can save you a great deal of money and stress in the long run. You just need to take your legal liability seriously.