How to protect yourself when free and clear

Question

Hi all,

I’m in that phase where I want to start paying off my properties and live off the rent.  Most properties are in California.  When I fully pay off the properties, I may be free and clear but piece of mind?   what happens if a tenant wants to sue me for something?   how do I protect the asset?   they are already in an LLC , try not to commingle the money?  Just some opinions since I’m new to this phase.

should I leave it and risk it

Get better insurance, will renters insurance cover

Put a line of credit on it

Refinance take money out and invest somewhere else.leave enough in so it will cash flow, prob won’t have as much in retirement if I do this

my overall plan is to live off the rent and pass them on to my children and continue what I have done

thanks

Justin Phillips · Answer

@Mel Rosario I can't offer much insight on the protection side of the topic. However, if you're looking to pay off your properties, I can provide some insight there. I'm a huge proponent of a specialized heloc tied to a zero balance sweep checking account, it's known as an "Offset Mortgage" overseas. Every dollar you deposit in the checking account is swept directly towards your remaining balance, saving interest cost and increasing your room available on the line. Every property you payoff/purchase with the line, pays off faster than the last, with the additional cashflow freed up from getting rid of that mortgage. That creates an even larger snowball effect, as the balance and interest cost are both dropping rapidly. You retain access to equity for 30 years, so you have great flexibility when you reach the promised land, retirement ;)

I recommend everyone educate themselves on the loan, especially those looking manage leverage/debt while maximizing flexibility.

Jo-Ann Lapin · Answer

Ate this point you should for sure consult with a good asset protection attorney .

Mel Rosario · Answer

Thanks for the responses

I already have an asset protection attorney

I probably need to change insurance policies as the properties are individually insuredI’m not sure what a landlord protection property is

Seems not a whole lot of options, need to make sure I’m in good communication with tenants and everything is in order, but most if not all the properties are under property manage,ent.

Winston Covington · Answer

Hi Mel,  We are of like mind and share similar goals. I recommend that your first line of defense be that you require all tenants to maintain a good renters policy naming you as additional insured. Next, make sure that you have the strongest Landlord protection policy on the market. I should have said this sooner but do your best to maintain your rental properties in good shape keeping a keen eye out for any possible safety issues. Last, get a high limit umbrella policy to cover all assets.

I own several investment properties and this is what I do. However; I would recommend spending some time with a good asset protection Attorney to see what else can be done to protect yourself.  California is a very litigation prone state and the Courts favor the tenants.  Be careful and good luck.

Bill B. · Answer

Yes you can require renters insurance but usually that’s to protect their stuff and damage they cause. Wouldn’t stop them from suing you.

Umbrella policies are cheap. $2mil on 14 properties, 2 cars, motorcycle, and boat $1,400/year.

My Allstate agent uses USLI.