Investing in rental properties & liabilities

6 Replies

Hello everyone,

I am planning the purchase my first rental property out of state (most likely in Cleveland) and I am aware of all the risk involved in this type of venture when we talk about financials.

Beside that, what are the possible legal liabilities involved?

I am just trying to figure out a possible worst-case scenario...

Thanks!

Congrats on your decision to start building wealth with real estate. There are three layers of protection for you.

1. Management style
2. LLC
3. Insurance

Guess which one is the most important.....management style. Focus on how you are here to serve the tenant. Keep the property in perfect shape and take care of maintenance immediately when you get a call. Think of this as the "ounce of prevention."

Insurance is the "pound of cure." If you do something stupid (don't repair a sidewalk) and get someone hurt, make sure you have $300,000 liability insurance on each house and a $1 million umbrella policy over all of your property.

I do not use an LLC on single-family but you could in some rare cases.

Make sure that you take a course on property management even if you are letting someone else manage them. You are responsible to know.

Thanks Stephen!

Originally posted by @Stephen J Davis :

Congrats on your decision to start building wealth with real estate. There are three layers of protection for you.

1. Management style
2. LLC
3. Insurance

Guess which one is the most important.....management style. Focus on how you are here to serve the tenant. Keep the property in perfect shape and take care of maintenance immediately when you get a call. Think of this as the "ounce of prevention."

Insurance is the "pound of cure." If you do something stupid (don't repair a sidewalk) and get someone hurt, make sure you have $300,000 liability insurance on each house and a $1 million umbrella policy over all of your property.

I do not use an LLC on single-family but you could in some rare cases.

Make sure that you take a course on property management even if you are letting someone else manage them. You are responsible to know.

 

@ Luca Giani

I would definitely take Steven's great advice. As far as different legal liabilities, that would probably be beyond the scope of this website, as we can't give out legal advice unless we're licensed attorneys and you're our client. There are a number of situations you will come upon that require the help of an attorney. The article I linked should give you a pretty good idea about that. Best of luck!

Originally posted by @Luca Giani :

Hello everyone,

I am planning the purchase my first rental property out of state (most likely in Cleveland) and I am aware of all the risk involved in this type of venture when we talk about financials.

Beside that, what are the possible legal liabilities involved?

I am just trying to figure out a possible worst-case scenario...

Thanks!

Maintain an insurance policy with at least $300,000 in liability coverage. Hire a professional property manager and maintain your homes per local, state and federal building codes and you're liability risk is rather low.

The liabilities of in-state investing versus out of state investing are roughly the same except where regulations come in. You can have fires, floods, bad tenants, etc anywhere. Obviously a remote investment requires a property manager to deal with all those issues and you hope that all goes well. That's a risk for local investments too, but you can do your own drive-by with a local investment that is more difficult with remote investments.

Regulations vary by state and municipality. The tasks to stay current is about the same, but staying current locally is probably easier than remote. For example, your state passes a "no eviction moratorium" and it's all over the news. A far away state does the same and its all over the news there, but not where you are. Likewise, tax and other changes at remote locations are a little harder to learn about if the authority doesn't send you a letter, which they rarely do, until you are in violation.