Building up a valuable real estate portfolio is a common way to achieve financial security. Even especially successful real estate investors, though, can find themselves facing losses that could have been avoided.
Fortunately, taking some proactive steps to protect your investments will make such problems less likely. There are seven particularly effective ways to protect any real estate investment.
1. Obtain More Insurance
Investing in real estate can be complicated, and that leaves some investors overlooking the basics. Even where a lender requires certain types of coverage, for instance, investors can easily overlook insurance options that would be valuable in their own right.
Many investors rely heavily on rental income, and that means becoming exposed to some related dangers. Obtaining landlord coverage with the help of a provider like Roger Butler Insurance will help minimize the associated threats.
A rental property covered in this fashion will be a lot less likely to become a financial burden. In many cases, a landlord policy will be so affordable that it will be difficult to justify skipping it.
2. Form an LLC
Getting started as a real estate investor is so easy that many do it without planning or thinking much about the options. Forming a limited liability company (LLC) early on will make subsequent losses less likely.
Investors who use LLCs to organize their real estate-related activities shield themselves from most related forms of personal liability. Given how easy and inexpensive it is to set up and maintain an LLC, there will rarely be a reason to hold back.
3. Set Up a Trust
Once a real estate portfolio has grown to a certain size, it will make sense to think about transferring some of its properties to a trust. Holding assets in trust will place some restrictions on how they can be utilized and liquidated, but that also means protecting them from creditors and others.
Contrary to what many investors assume, trusts are not only appropriate for especially wealthy people. Even investors with relatively modest portfolios can often justify the required legal and administrative fees.
4. Strip Out Some Equity
Once equity has been built up in one or more of a portfolio’s properties, it will often be wise to consider transferring it elsewhere. Taking out a new loan against property and distributing the proceeds to an LLC’s owners is one simple way of doing this. While the cost of the loan will always need to be accounted for, this a straightforward way to turn vulnerable equity into secure personal wealth.
5. Turn a Property Into a Homestead
Although it will only be applicable to a portion of any portfolio, opting to declare a new homestead can be useful. Should one property in a portfolio have become especially valuable, homestead exemption laws in many states will help keep it safe from creditors and others.
6. Give Some Gifts
Many successful investors decide to wait until they pass away to pass along their wealth to heirs. It can be even better to start distributing those hard-earned returns while still alive. While taxes can make this option less appealing, the price that needs to be paid will sometimes be easy to justify.
7. Be Wary of Joint Accounts
Even a formerly blissful marriage can deteriorate quickly. Joint accounts expose both owners to the danger of the other suddenly ransacking the contents. Think carefully about which assets should be held jointly and which would be better kept under the name of one partner.
Many Ways to Protect Valuable Real Estate
Tactics like these can always be used by real estate investors to make large, sudden losses are less likely. Just about every investor who builds a portfolio of any size will do well to look into the options.