Protecting your hard-earned investment properties should be a priority for many investors early on in their business. Understanding how to properly set up asset protection can pay off in the long run in the case that something unsuspected happens. It is advised that you speak to your trusted lawyer or accountant to gain the best advice but it’s good to understand what your available options are. 

There are two commonly used strategies for asset protection in real estate. One is forming an LLC or Limited Liability Company or purchasing umbrella insurance from an insurance provider. Each has its benefits and tradeoffs. 

Limited Liability Company – LLC

Purchasing an investment property under a formed LLC has its advantages. By forming an LLC, you receive limited liability protection in case something happens involving that property. Usually, the idea around the LLC is that it’s like a bubble that wraps around your property. Anyone suing you can only go after what is inside of the LLC. Your other assets are protected because they are not tied to the LLC. Another benefit of using an LLC is that you can be anonymous with your tenants. This is especially beneficial when having a property management company to manage your investment. That way, your tenant does not know your actual personal information such as home address as they are paying to the LLC or business rather than directly to you. Also, when owning a property, if you’d like to hide your ownership, when anybody looks up records tied to that property, they will see the LLC, not your personal information. 

Umbrella Insurance Policy

Umbrella insurance is another way you can protect your asset. Essentially, this insurance provides extra liability insurance coverage that goes beyond the limits of the insured’s homeowner’s insurance. This insurance policy provides the needed additional layer of security for investors. A key benefit of using the umbrella insurance policy over an LLC is that you can still qualify for regular residential loans. As an LLC owner, buying homes requires more commercial style loans that are less favorable in comparison to regular residential loans. 

Should You Have Both? 

Each approach does cost you extra money as an investor. Having both on average costs more to maintain than is actually worth it. If you have the ability to purchase homes in an LLC with funding outside of conventional residential loans then you could use this method of protecting your asset. However, if you plan on house hacking or living in the unit to receive favorable conventional loans, then maybe the umbrella insurance makes more sense for this use case scenario. There is more to it and we have only scratched the surface. We highly recommend that you consult with our professionals here at Real Success to best advise you on which method you should take advantage of to protect your real estate assets.