What’s best way to protect assets as a landlord?
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
Dear Carrie,
I’d go with a liability umbrella policy of about 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’s not very expensive, either, and should only cost about $250-300 a year.
If you start to build a substantial portfolio of investment real estate ‘ such as houses ‘ you might want to begin putting every four or five properties you buy into a separate corporate entity. I’d advise an LLC, which is a kind of cross between a sole-proprietorship and a corporation. Plus, it has some of the best characteristics of both business types.
Each LLC is a separate company with its own checking account. If you do all the paperwork properly and an LLC entity owns a property where someone falls and sues you, then they can only sue for the assets of that company!
‘ Dave
Dear Dave,
I’ve been renting a house for a while, and our lease isn’t up until the end of the year. The other day I got a notice from the bankruptcy trustee saying that our landlord has filed Chapter 7. According to the trustee, he plans on surrendering the house. Is there any chance we could talk to the first mortgage holder and buy the house for the value of the mortgage?
‘ Glen
Dear Glen,
I’m afraid the only way you’ll be able to buy this house is through the foreclosure process.
It sounds like the trustee has looked at the property and decided it doesn’t have a lot of equity. Otherwise, he would sell it and take that equity to pay the creditors. The trustee then abandoned the property back to your landlord, and he didn’t want to reaffirm. At this point, the property is no longer protected by the bankruptcy and this allows the lender to begin the foreclosure process.
Now, the lender has a lien against the property until the foreclosure sale occurs. They don’t own it. You can, however, try to buy it from the landlord at this point. He still owns the place, even though he’s surrendered the place. You’d have to get a new mortgage to make this happen, and that would be tough right now.
The bottom line, Glen, is that this is a doable deal but it’s kind of complicated. Make sure you get a good real estate attorney to walk you through it all.
‘ Dave
Dear Dave,
We’ve got three kids and are debt-free except for our mortgage. Last month we started living on a budget. Our house payment is $1,200, and my husband and I together make about $47,000 a year. We like our house and the neighborhood, but would it be wise to move down in house ‘ and save about $500 a month on our mortgage payment?
‘ Dawn
Dear Dawn,
If saving money is the only reason you’re thinking about moving, then I’d say don’t do it. Selling your home, uprooting your family and changing schools are very draining ‘ financially and emotionally. Now, if you made $3,000 a month and had a $2,000 house payment I’d tell you to get out. Right now things are a little tight, but very doable.
It may take a few months of really working the budget to get all the kinks out and see what you can afford and what you need to sacrifice to give yourselves a little more breathing room. Then, after about a year you’ll have gotten really good at it and have an accurate idea of whether or not you need to move.
Just take your time for now, Dawn. Doing a budget is a money stretcher, and managed money has a way of growing. You’ll probably feel like you’ve gotten a raise after you’ve been doing it for a while!
‘ Dave