As a real estate investor, you may own several properties at one time. You’ll be buying and selling and handling all kinds of financial transactions. However, you want to protect your personal property and finances and it helps to understand what asset protection is in real estate and how it works.
Why You Need Asset Protection
There are several reasons you want to protect yourself and your private assets with regards to your real estate investments. First, you want to limit the financial impact of having these properties in your name when it comes to tax time. You’ll pay more in taxes if your investments are listed as part of your personal income (in most cases).
If you have an S corporation or LLC that “owns” your property, you can use different tax breaks than what may be available for individuals. The result is you pay less taxes on the money you make. Another issue is with lawsuits. If something happens with one of your properties and someone sues you, your personal assets will be safe.
How to Protect Your Assets
The short answer to this question is not to own any properties. Now, that seems counterproductive to what you want as a real estate investor. However, the idea behind asset protection is to prevent you from being personally liable for these properties.
To achieve this level of protection, you need to set up companies. It can be a limited liability company or LLC or an S corporation or other entities. When you purchase a property, you’ll buy it through the company instead of through your own personal name. You can create as many companies as you want and divide up your properties as you wish.
When you do this, you prevent issues from going beyond the company that owns the problem property. Your other properties are safe, and your personal assets are protected.
Of course, the companies must be set up the right way for it to work. It can be complicated to get them set up right, so you’ll want to hire an attorney to help you with the process.