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A resident getting injured on your property is serious business. Something simple like a hand railing on the stairs came loose, and the resident fell down the stairs. Or a resident tripping on the uneven concrete driveway.
This topic isn’t just for people who own rental properties; it can also be applied to your private residence. Suppose you were to lose your brakes on your car and rear end someone. Imagine that someone dies as a result of your brakes going out. Your first line of defense is your car insurance. However, you can be sued if your policy isn’t high enough. To collect on the judgment, the judge can force you to sell your home and any other assets to fulfill the judgment.
Don’t find yourself in a situation such as these examples below:
$2.25 MILLION was awarded to a resident when the roof of her home collapsed on top of her. She reported the water leak to the landlord several times, and they failed to take action.
$1.04 MILLION was awarded to two women because their landlord failed to fix leaks, leading to mold in the home and health issues.
$1.45 MILLION was awarded to a resident when her bathroom ceiling fell on her, resulting in severe cervical spine injuries.
I could go on for days about this topic, but the real point I wanted to discuss is the protection of your assets should a lawsuit arise.
During our September webinar, we discussed ways to protect you and your family from financial ruin. What if your resident decided to sue you for something such as mold or for falling down the stairs? What do you stand to lose? Your home? Your rental property? Your savings account? Your vacation home?
Think about it for just a moment.
One lawsuit could upheave your entire retirement plans. No, more traveling, No, more vacation home. You could be living in a one-bedroom apartment, barely making ends meet. Don’t think it could happen to you? It has happened to others.
I know of a couple sued by their residents and lost everything except their retirement benefits. They ended up living out their retirement in a one-bedroom apartment, unable to travel or do the things they planned.
Our goal as your property managers isn’t just to manage your property or properties; it’s to ensure that you and your family are protected for generations to come.
So, what are the ways that you might be able to protect yourself?
(side note: I am not a financial planner, CPA, or attorney. I strongly recommend consulting with professionals)
Establish an LLC
Establishing an LLC allows you to protect your other assets in case of a lawsuit. You may explore establishing an LLC for each property if you own more than one property. By establishing an LLC, you limit your assets to what is in that specific LLC. If the resident of the property on ABC Street decides to sue you, they can only sue you for the one property in the LLC.
Another benefit of having your property as an LLC is being anonymous. If a lawyer is trying to decide if they should take the resident’s case or not and does a quick search of your assets, they may come up empty-handed. Thus, declining to take the case.
Another option for protection is an S- Corp.
What is an S-Corp? According to the IRS, “S-Corp is a tax designation available to certain corporations and LLCs.” Having an S-Corp set up allows you to pass corporate income, losses, etc., to the shareholder for federal taxes.
Setting up an LLC is simple
- Pick a name
- Open a bank account in the LLC
- Put the property address into the LLC via a quit claim deed and record it.
- Change the lease to be between the resident and the LLC or change your management agreement between the LLC and the management company.
Other ideas for protecting yourself from financial ruin
- Insurance-it might make more sense to have an umbrella policy than an individual LLC, especially if you own several rental properties.
- Certain kinds of trusts offer similar protection as an LLC
Places to get assistance setting up protection
- Legalzoom.com
- If you own multiple properties, talk to a Real Estate Attorney
- Talk to a Financial Planner
- Insurance company
Companies that We Endorse
CPA Referrals
Chip Stearns
Inland Empire
951-780-5100
Frank W. Stearns, Certified Public Accountant Inc.
Kirk Reidinger- 949-230-6632
Newport Beach
Stephens, Reidinger & Beller LLP
Financial Planners
David Willett 561-569-0496
Brett Ferguson 541-389-0889 x 129
AGP Wealth Advisors
Ameriprise Financial, Inc.
brett.ferguson@afs.ameriprise.com
The main takeaway is to protect yourself so that one lawsuit doesn’t rob you and your kids of your wealth. You’ve worked hard to build your retirement and leave something for the next generation.
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