When buying a real estate property, it is very important to protect yourself and your possessions from any forms of lawsuits. We are living in a “sue-happy society or a litigious time. People need to protect themselves and their valuable property.
One way to help prevent other people from taking advantage of the assets is to take the necessary precautions and think ahead in order to make sure that all the valuable treasure is properly secured. When there is a lawsuit filed against you or the company, all the assets with a value like your house, car, bank accounts or the equity in your house are at risk to be taken away from you.
Listed below are some ways to help owners make sure that their real estate properties, according to Fayetteville, NY real estate experts, as well as the personal possessions, will be appropriately protected and secured.
Table of Contents
Set up your Limited Liability Company or LLC to hold all your real estate properties
Let us imagine you are buying a four-plex as an investment and you will rent it out to get some profit out of it. When setting up the entity, you need to make sure that it is structured the right way to hold the title of the real estate property. LLC or Limited Liability Company is an excellent protection for the real estate.
When you set up your Limited Liability Company, make sure that it is holding the title of your newly-purchased four-plex. The structure will also help owners protect all their personal possessions. For example, if the occupant of the property sues for falling on the stairs of the property and wins the case, they are not able to acquire all your personal possessions or assets since the four-plex is owned by the Limited Liability Company or the LLC.
They will only be able to access the assets owned by the Limited Liability Company. But if you owned the four-plex and did not make a conscious effort to set up the Limited Liability Company to keep the assets separate from your personal properties, you could be valuable to limitless personal liabilities.
To know more about LLC, visit https://www.investopedia.com/terms/l/llc.asp for more information.
You could personally help liable for paying back whatever amount the court awards to the occupant for compensation. For some people, that means bankruptcy. That is why it is imperative to set up and LLC for real estate, as well as personal property protection.
Maintain the Limited Liability Company properly
In order for the LLC to protect the property from claims, you need to maintain it properly, just like taking care of a backyard garden. Taking care of the garden by feeding and watering it regularly is the best way for it to survive and produce more food for your table.
For the Limited Liability Company to survive, and keep protecting your properties, property owners need to pay the yearly fee to the state to make sure that minutes are kept at meetings, and the needs to be a resident agent to accept the service of the process or notice of the lawsuit.
If you don’t follow the easy steps, the business entity will lose its good standing; it won’t be able to safeguard your real estate as you will be very vulnerable to destroying the corporate veil and all the business or personal assets could be taken if the legal decision is against the owner. But if the steps are followed, the owners will be safe and protected.
Segregate the assets
When creating a Limited Liability Company, it is essential to remember that people can still obtain your assets even if the LLC protects it. That is why it is imperative to segregate or separate the assets into different Limited Liability Companies to act as a backup plan or safety net and make sure that they are not able to acquire all the company assets or real estate investments.
To know how to create an LLC for free, click here.
Use equity stripping
Another way to protect assets is by using equity stripping or equity transfer. This way, the property or equity is protected by encumbering the real estate itself. Debts are considered as an excellent asset protection. The more debt the property has, the less equity it will get, there is a small chance of getting litigation.
If a mortgage is excellent protection, why not create it by yourself? You can do this through spousal transfer, getting a secured credit line, using the real estate as collateral or using a technique called the cross-collateralization.
It is a term used when the guarantee for a loan is used as collateral for another load. Of the owner of the property has borrowed from the same bank for a home loan secured by the same real estate, or car loans secured by cars, the owner can use the assets as cross-collaterals for different loans.