6/13/2005

Advice from Nashville's leading Financial Aid Advisor Dave Ramsey

 
Dave Says
By Dave Ramsey
Author of:
Financial Peace and
The Total Money Makeover

"Landlord wonders how to protect her own assets?"

Dear Dave,

I’m a new landlord and I’m wondering, in the event of a lawsuit, what is the best way to protect my personal assets.

Carrie in Oklahoma City



Dear Carrie,

I recommend a liability umbrella policy of two million dollars. This picks up where your liability leaves off on your car, homeowner’s and rental property fire and extended coverage policies. It will cost you about $200-300 a year for that much liability coverage.

There’s another thing you can do if you start to build a substantial portfolio of investment real estate, such as houses. For every five or so properties you buy, put them into a separate corporate entity. The best entity to use for this is an LLC, or Limited Liability Company. An LLC is a kind of cross between a sole-proprietorship and a corporation and has some of the best characteristics of both kinds of business forms. It’s a great form for a real estate holding company. Each LLC is a separate company with its own checking account. If you do all of the paperwork properly and an LLC entity owns a property where someone trips, falls and sues you, they can only sue for the assets of that company. They can’t sue for your personal assets or the assets of one of your other companies. 

In the meantime, until you get a whole bunch of investment properties, a simple umbrella liability policy will go a long way.

-Dave
 

More About Dave
Dave Says Articles
Dave Ramsey History
Dave Ramsey.com