How to protect my SFH rental investments from lawsuits

7 Replies

Hello, folks.

I am married. We have 4 SFH rentals in TX and OR with a market value about 1.3 millions at this time. All the properties have mortgages. The mortgages are only in my name.
I want to protect our investments from lawsuits and limit our liabilities. I manage them by myself (no outside property management firms). Besides the landlords insurance policies, what else should I do?

I appreciate your input.


This post has been removed.

@Ted N. , Andy Krzanowsky ,
If these are in your personal name, I would just get an umbrella insurance policy for say $1 to $2 million.

You could transfer them to a trust or LLC but then you risk the due on sale/transfer.

@Ted N. and @Account Closed ,

If you can fund your LLCs such that they can "buy" the properties from you, that solves the DoS worries. DoS can happen, but it is not the norm. Most banks don't see the ROI as worth the trouble / expense.

Thank you, gents!
I will definitely need to consult a RE attorney for this. But I want to see what others have done before talking to a RE attorney.

Totally agree with David here. Owning it is what puts you at risk. Anybody who thinks having lots of insurance is a protection hasn't been investing very long or doesn't understand how lawsuits or insurance works. Having property owned by a trust with the underlying beneficiary being an LLC or other type legal entity provides you with the best combination of privacy (from the trust) and legal protection (from the entity). You can make things as elaborate as you need depending on your risk tolerance. I can also attest that you will likely never have a due on sale called and people who say that happens you should be asking them who do they know personally that it has happened to. The answer will most likely be "I don't personally but I heard at a seminar..." 

There are so many benefits to trusts that I have a hard time understanding why anyone would not use them.  They circumvent probate, are not subject to partition, incredible privacy, ease of transfer, judgements against the beneficiary don't attach to the property, transparent for tax purposes, most lawyers have no clue how to deal with trusts and the list goes on...

Banks collect money on loans, as long as you don't stop paying the payments the bank could care less who is making the payments.

This post has been removed.

I am seeing mixed information here. There is nothing you can do that is 100% perfect. You can take steps to add protection and the more you do the better.  I'll give my general thoughts:

1) LLC ownership is good;

2) Maybe a few LLC's to separate out assets;

3) Putting LLCs into a trust can be beneficial in some states for creditor protection (Nevada for example); 

4) $2m or more umbrella.

Oh ya, and above all else, be a good landlord!  Don't be a slumlord.

There are other things people can do but it's not practical for most people. For example, using Nevada corporations to place mortgage against properties to show encumbrances. Use of off short entities. The list goes on and on but is not practical for most people.

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here