Janet Cramb & Company/LAER Realty Partners



Posted by Janet Cramb on 2/17/2021


 Photo by Tumisu via Pixabay

Before renting out a multi-family property, you should take steps to protect yourself from personal liability if anything were to happen. Without the right protections in place, you could end up on the hook for damages caused by fires, crimes and more ­– even if you did not cause the situation yourself. Thankfully, there are a few smart steps you can take to minimize the risks.  

Create An LLC

If any disasters come your way while renting out your multi-family property, your tenants or other affected individuals can file a lawsuit and go after your personal assets to cover their damages. By creating an LLC, you effectively prevent the courts from going after your personal assets, limiting them to your business assets alone.

In addition to setting up your business structure in this manner, you must avoid piercing the corporate veil or the court could ignore your LLC designation. To avoid that scenario, make sure to open separate bank accounts and keep all your assets clearly separated.

Set Up An Insurance Policy

Beyond setting up an LLC, you need a good business insurance policy designed for owners of multi-family properties. Your insurance company will tailor your coverage to your expectations, providing protection from a variety of risks. At the very least, consider including these three levels of coverage:

Liability

With general liability insurance, you are covered if anyone gets hurt or suffers other damages while using the common areas in your buildings, such as:

  • Swimming pool
  • Hallways
  • Laundry facilities
  • Parking lot
  • Fitness center

Depending on the situation, your insurance company will pay for their bodily injury or property damage claims, protecting your business from a lawsuit.

Property

Fires, floods and other disasters are only covered if you add property damage coverage to your policy. Your insurance company will pay to have structural damage repaired and even replace items damaged in the office during the unforeseen event.

Crime

If criminals cause damage to your property or steal from your business, then crime insurance can help minimize your losses. The types of crimes covered by this type of coverage include:

  • Vandalism
  • Robbery
  • Forgery
  • Fraud
  • Theft

Depending on the insurance company’s rules, you may need to file a police report before making your claim.

No matter what level of coverage you choose, your insurance policy does not cover your renters’ belongings. For that reason, you should encourage them to set up their own coverage through their company of choice.

Add Umbrella Insurance

If you accidentally pierce the corporate veil or simply exceed your insurance coverage limits for the year, your personal assets will once again be on the line in the event of a lawsuit. For an additional level of protection, sign up for an umbrella insurance policy. By paying just a few hundred dollars a year, you can get over a million dollars in coverage for liability, property damage and other costly events.

By taking these steps, you will have the protection you need to start renting out your multi-family property without worry. If anything goes awry, you can trust that the steps you took in the beginning will go a long way in minimizing your personal liability.  





Posted by Janet Cramb on 11/25/2020

Photo by 1000Photography via Shutterstock

Investment in real estate rental properties has many upsides. You can make great money long term. But as with any business, there are risks. Before you turn your condo or townhouse into a rental or invest in a house or duplex, consider the ramifications and consult professionals.

Dos and Doníts:

  • Do set up a legal entity to own your rental properties for you. This may be a Limited Liability Company (LLC), Corporation or Partnership. Donít hold the property in your own name. This protects you from lawsuits and judgments.
  • Donít overspend on the property. Donít overspend on upgrades or refurbishing.
  • Do take care of the major systems such as HVAC, plumbing, electrical, roofs, in-ground sprinklers and garage doors.
  • Do get the property inspected to make sure there is no hidden damage or problems youíll need to fix.
  • Donít buy your first rental without looking at it.

Dealing with Tenants

Owning a rental property does not guarantee youíll have immediate profits. If you go several months unoccupied, you still must pay the mortgage, taxes and insurance. If you donít know how to go about getting tenants, consider using a property management service. The small monthly fees you pay usually make up for months with no rent or bad renters. 

Another advantage of using a service is that they vet your tenants for you. They run the credit checks and make the phone calls to employers and banks. The only thing worse than no tenant is a bad tenant. Bad tenants damage property, renege on paying their lease payments, and cost you money if you decide to evict them.

Handling Maintenance

As with any home, thereís no actual way to anticipate all the things that could go wrong. Sometimes, one failing system causes problems with other systems. For example, electrical malfunctions can damage the water heater, leading to plumbing failure. A leaky roof might trigger the AC to go out. Donít run your rental business on a shoestring. Keep funds available to fix anything that goes wrong so that you donít lose your investment.

If owning rental property is your goal, talk to an experienced real estate professional. They can guide you toward profitable properties, introduce you to property management companies and help you on your way.




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