Investor Protection

6 Replies

As I start to buy more homes, how can I help protect myself and my family from various lawsuits? I also own an irrigation consultation company and it is an LLC. Should I place any real estate purchases under that umbrella? I also have all my assets, including two rental properties, currently in my trust. Is this something that is good or bad? Not sure which way to go for best protection other than insurance and speaking of that which coverage is best?

Calvin, as a commercial insurance broker I can tell you that you will create more issues "blending" your Irrigation Consultation biz with the rentals.  It would be close to impossible to find 1 insurance carrier willing to competitively price a combined program. 

That being said, with 2 rental properties (insurance carrier will base their decision on # of rental units, not locations) you want to first find out if your current insurance carrier will offer a General Liability limit of $2million before adding an umbrella policy.  This can be done for $25-$50 a year.  If they can't do that, they will be able to give you a price for each million in coverage.  The higher the limit, the less it costs for each million.

Replacement Cost, special form is the best.  It may not be available if your properties are too old for your insurance carrier.  If that is the case, try and find an insurance carrier who can offer it.  If by last resort, ACV (Actual Cash Value) is your only option, it is very important to insure to the proper value.  If you do not, you may not have enough money from the insurance carrier to get your property back to it's previous state.

Originally posted by @Calvin Lang:

As I start to buy more homes, how can I help protect myself and my family from various lawsuits? I also own an irrigation consultation company and it is an LLC. Should I place any real estate purchases under that umbrella? I also have all my assets, including two rental properties, currently in my trust. Is this something that is good or bad? Not sure which way to go for best protection other than insurance and speaking of that which coverage is best?

 Calvin, you definitely want to keep your two operations separate.  You also must realize that you have two "business" exposures and you should insure your rentals on a commercial policy form, preferably on a Master Policy with easy monthly reporting capabilities.

Using a loss control formula of whatever your "Actual Net Worth, Perceived Net Worth and Potential Future Net Worth", you would carry enough liability coverage to ensure your insurance coverage is more attractive than whatever that figure is.  So if your real estate investing "business" is worth more than $1,000,000 (income, assets, etc) then the easiest and most cost effective thing to do is to simply increase your occurrence limit to $2,000,000.  You can do this on a commercial policy form, even though  you're investing in residential properties.  Only when your needs exceed $2,000,000, would you need to begin purchasing an "umbrella" policy in increments of $1,000,000.

I would also recommend working with and agent/company that is licensed to do business in all 50 states and can handle your needs regardless of the stage of renovation your properties might be in.. Meaning, vacant, occupied or under renovation.

I have been in the insurance business for 11 years and actively investing since 2011 and from my experience, this set up serves investors the best.

I hope that helps.

Ivan

Thank you both for your input.  I will speak to my current insurance agent see if they offer a General Liability Policy covering all 50 states.  This gives me a good direction to start.

Thanks again

@Calvin Lang  

Just wanted to make sure that you are also clear that you would be wise to have the rental properties separated from your other assets. Putting them in their own LLC wouldn't be a bad idea. Otherwise, I like the advice you got above from both posters. Excellent info. Personally, I don't think I have to deal with an insurance company licensed in all 50 states. My properties are in one state. So I would consider what type of investments you think you will be making in the future.

Thanks...I had thought about an LLC but wasn't sure if it was needed. I guess for best protection it would be wise to invest in the time and money to create another LLC for the Investment business. Thanks

Originally posted by @Calvin Lang :

Thank you both for your input.  I will speak to my current insurance agent see if they offer a General Liability Policy covering all 50 states.  This gives me a good direction to start.

Thanks again

 You bet!  I'm happy to help in any way I can.

Ivan

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