Business Succession, Estate Planning, Legacy, Real Estate, Trusts, Wealth

Rental Estate in Your Name? You’re Playing with Fire

Behind retirement accounts, real estate is usually the second most important asset to my clients.

And it can be taken away in an instant if you’re not careful.

I don’t mean to spook, but if you own multiple real estate properties, you should strongly consider setting up the correct legal structures to protect you and your assets.

What do I mean?

Well, I’m making the assumption that you have multiple pieces of real estate, and the ones you are not living in, you are renting out to tenants.

What happens if the tenant slips and falls due a burst pipe? What happens if a friend comes over and gets attacked by the neighbor’s dog? What happens if your failure to pay the electricity bill accidentally kills a tenant dependent on electricity for their life?

You could get sued.

And even if you think you’re in the right, it could cost quite a bit of money to defend a lawsuit.

More importantly, if you lose said suit, you could really be in a bind because the money you owe on that lawsuit must be paid back, or you must declare bankruptcy.

Worse yet, you can’t declare bankruptcy until you are completely out of money. And the only way you would completely run out of money would be through selling all of your properties, your cars, liquidating your bank accounts, etc.

Complete financial ruin, and/or bankruptcy.

Neither of those options are ideal, are they?

So how do you avoid a situation like this?

You put your properties in separate companies.

More specifically, you create LLCs for each of your properties. Each of the LLC owns one property, and, if something bad happens on one of those properties, and you get sued on that specific piece of property, you can declare bankruptcy with just that one property.

In other words, you keep all of your properties separate from one another. If one goes down, all the other properties are fine.

No need to sell to pay debts. No need to worry about spill over into your personal finances.

You would be completely protected and free of one obligation harming all your other assets.

Most people assume businesses are for the super rich only. But it’s available for everyone! And, at least in Texas, setting up a company is relatively cheap with not too much paperwork.