Q. I have 4 rental properties. I have been told to incorporate each property or at least all 4 under one corporation. How can I protect myself from 99.9 percent of all liability?
A. There are various ways to protect yourself when owning real estate. But first you have to determine which types of liability you’re vulnerable to.
If you’re concerned about personal injuries at your properties, you may wish to obtain insurance coverage for a million dollars or more. You may be able to do this relatively inexpensively by adding an umbrella liability policy to the homeowner’s insurance policy for the property.
If your concern is that one of your tenants will sue you due to a lease issue, you may wish to have a separate company own each property. That way, if the tenant wins a judgment, he or she can only go after the assets of the company that owns the property, rather than all of your assets.
Keep in mind, that there are transaction costs involved in setting up individual companies, including annual fees and accounting costs and expenses. Some people say that the expense of protecting yourself in a small business from all personal liability may be too great to be protected absolutely.
You should really talk to an attorney that specializes in asset protection management or a corporate or real estate attorney for further information.
February 6, 2004