By Dr. Teresa R. Martin, Esq., REIA NYC
As a real estate investor, your assets will be exposed to a significant amount of risk- from natural disasters and unanticipated repairs, to major downward shifts in the market, problem tenants, and liability lawsuits. In the end, you may find yourself holding on to real estate that no longer has the value it did when you initially signed up for it.
While you can't plan for every setback, there are three things you can do to significantly protect yourself and your assets from any curve balls that life throws your way:
Take yourself out of the liability loop.
One of the first things that you need to do as a real estate investor is to make sure that you will not be held personally liable for any injuries or damages that occur on your property. One of the most common ways to do this is to create a limited-liability corporation (LLC) and have the property registered in the name of this new corporate entity. By doing this, all liabilities will be directed at the company instead of at you, thus allowing you to protect your personal assets.
Insure your properties.
You absolutely must have good insurance coverage on your properties- both the personal properties you live in as well as your real estate investments. Don't even think about skimping in this area. It only takes one major disaster or lawsuit to wipe you out financially. As a general rule, the greater your portfolio, the greater your liability insurance coverage needs to be. It is also a good idea to require that each one of your tenants have a renter's insurance policy.
Just keep in mind that you should always consult with a professional insurance agent to discuss your particular situation. Different properties come with different insurance needs. Not having the right kind of insurance as well as under-insuring and even over- insuring a property can lead to disastrous consequences.
Get the property management right.
Hire professionals to manage your property for you, or do it yourself by making a serious commitment to learning all you can about the best practices and legal requirements of property management. Realize, though, that learning all the ins and outs of property management is a lot to chew off. So, you need to be real with yourself and your situation. If you can't afford to hire an outside company to help you manage your properties, then you owe it to yourself to invest the time and energy needed to figure everything all out.
Whatever option you choose, just keep in mind that many potential headaches can be prevented by ensuring that your properties are being properly monitored and secured, that tenants are going through an effective screening process, and that you are following a consistent maintenance schedule.
While real estate investing can be a risky business, it doesn't mean you have to gamble with your hard earned assets. A few simple precautions can make all the difference between riding out a storm or being knocked down by it.