For a 30-year mortgage, the average rate is 4.17%. The rate isn’t standard, as housing prices keep fluctuating. Yet investing in real estate will see your assets appreciating over the years.
If you’ve decided to join the real estate industry, asset protection is paramount. Just like in most industries, investing in real estate has its shortcomings. Adopting different asset protection strategies for your real estate will secure your property.
How can you protect a real estate asset to ensure its value? Follow this guide for several reliable ways to keep your investments valuable.
Insurance is one of the most popular asset protection strategies in the real estate industry. The cover you choose for your property depends on the real estate type. You can protect your home with a homeowner’s policy and your commercial property with a business policy.
You’ll need to increase your insurance coverage as your portfolio enlarges. Ultimately, consider an umbrella policy for comprehensive coverage. Insurance will protect you against several catastrophic events.
An insurance professional can guide you on possible exposure for your property and insurance needs. Discuss the costs and the features of the chosen cover. Ensure that you shop around before settling on an insurance company to get the best deal.
2. Limited Liability
LLC for rental property can protect your personal assets from potential lawsuits. With limited liability, debtors can’t come for your home to compensate for the issues arising in your business. The corporation pays for its expenses.
You can buy a house with an LLC and rent it to yourself to minimize financial risks. This strategy will limit the chances of personal real estate asset seizure. But you need to be keen on asset transfers to avoid charges on fraudulent practices.
Have your commercial real estate properties in different LLCs. When one asset faces a risk, the rest of your property will be safe. You can have your real estate investments in different names to avoid adverse effects when you’re subject to a lawsuit.
3. Anonymous Land Trust
Anonymity is a protection layer you’d want to consider. Get an anonymous land trust to avoid legal implications on your real estate property. The trust has the grantor, beneficiary, and the trustee.
With a trustee, you don’t need to have your name on records. When caught up in a lawsuit, lawyers can’t connect your trust to any of your property. Putting your house in a trust will protect your investment.
The anonymous land trust will discourage anyone from trying to pursue a lawsuit against you. One needs to invest money to discover your identity even before going ahead with the suit. The high costs might not resonate with the sought-after compensation.
The titling of your home can be a great protection strategy. Having your spouse as an equal tenant gives you indivisible interest. If your spouse is facing a suit, creditors can’t claim your house because you have an interest.
Some states don’t have titling exemptions. Talk to your real estate agent or a lawyer to learn the provisions in your state. You might need to have other complementary strategies to protect your home equity.
Note that the indivisible interest can only apply to your personal residence. You’ll need an investment property for your commercial assets. A tenancy in common can be an ideal option for other real estate asset protection.
5. Protection Through Debt
Debt is one of the most affordable ways to protect your real estate property. With debt, the available equity is insignificant. The low income might discourage creditors from coming after your property.
If you’ve decided to invest in the real estate industry, debt is a strategy you don’t want to ignore. Keep pulling out all equity from your property. Reinvest the money in other projects.
The approach ensures that you won’t have excess equity that’s attractive to creditors. What’s more, the “loan” is tax-free, which means more savings on your end. You can have your assets under your spouse’s or children’s names to minimize the risks.
6. Get Rid of the Assets
You can get rid of your real estate asset if creditors are on your neck. A lawsuit against you can’t affect the property that’s not under your name. Transfer ownership of the property to irrevocable trusts.
Through the program, listed beneficiaries can get the income after a specified period. Conversely, you can opt for strategic gifting to family members. The gift tax exemption ensures that you don’t incur the liability as long as you stick to the minimum amount.
An advance will also be an effective way to protect your assets. It would be a joy to see your heirs enjoying the assets instead of dealing with ruthless auctioneers.
7. Homestead Exemptions
One of the best assets to own is a home. As part of increasing your home value, you’ve probably engaged a professional foundation repair contractor to make the renovations worth the investment. But creditors are seeking to claim your home.
Do you sit and watch as your home investment goes down the drain? Thanks to homestead exemptions, you might save your home. You can declare bankruptcy to have home equity protection.
In some states, some laws offer full or partial protection of home equity. You’ll need to understand the requirements in your state to know the extent of home exemptions. If the exemption is high, consider increasing your mortgage payment to promote fund protection.
8. Avoid Risky Situations
As a real estate investor, risk-taking is perhaps one of your enviable mottos. But is it worth it to risk your hard-earned assets in avoidable situations? You should be vigilant when signing contracts and engaging in deals.
That’s not to mean that you slow down on investments. Instead, carry out your due diligence at all times. You don’t want to face a lawsuit because of a contractor who couldn’t use quality roofing materials.
Read contracts carefully and make agreements with accredited professionals. You’re less likely to face the wrath of the law.
Adopting Several Real Estate Asset Protection Strategies Will Save Your Home and Commercial Investments
The real estate industry presents challenges that can dwindle the value of your property. You never know when a catastrophe will strike, so you’ll need to arm yourself. You can combine the property protection strategies to ensure that your real estate assets remain secure.