First in a series of three articlesby Robert Locke, RMP, MPM
Every business brings with it a list of risks that the owner needs to
manage. Some can be addressed through careful business practices while
others need the help of an outside insurance company. Owning a rental
property is probably one of the higher liability businesses you can get
into, so pay close attention to the risks that come with it. Being a
landlord exposes you to lots of risks and careful planning. The
right insurance is required to prevent these risks from taking you out.
The first, and cheapest line of defense in protecting yourself from the liabilities of the landlord business is never title your property in your own name. This may surprise some landlords but with county deed records online, any tenant, lawyer, neighbor or in-law can find out who owns a property and who’s name to list as the defendant in a legal action. The public nature of real estate makes it easy to make a claim, file a legal action, and make you prove you don’t owe them something. Suing people has become an American pastime and fortunes have been lost by many because they have left their name on their deed records and made themselves an easy target.
Through the use of LLC’s, Land Trusts, spouse's maiden name (and other title holding strategies) you can make the question of who owns the property a real challenge, even for the trained hunter. Making it hard to know who to sue is half the battle of protecting yourself against flaky litigation.
The second major strategy you should always use to protect your assets from the risks of owning rentals is to manage them through someone else. By setting up your own management business (preferably an LLC that you own) or hiring a professional property manager, you establish another layer of protection between you and your litigious tenant. You never want to manage a rental property as the owner. Always manage as the property manager for the management company. This creates distance and protections between you and the one who wants what you have (tenants and their lawyers).
After you have structured your title and management strategies properly you should then look to insurances for more protection. There are several levels of insurance to consider.
Next article will cover the most important type “the Landlord casualty insurance policy.”