Getting into the real estate game can make for lucrative investment opportunities. However, it does not come without its own set of issues and concerns. Navigating the challenges of being a landlord requires protecting yourself with legal considerations.

Your properties will be the most vulnerable assets you have in light of any legal challenges that come your way. To best protect yourself against any potential problems, build a safety net of legal resources.

With land trusts, LLCs, and equity stripping, you can ensure that legal troubles don’t end up risking your most vital assets.

Here’s what you need to know.

Land Trusts

Legal judgments happen all the time to good people that could threaten their livelihoods and hard-earned holdings. For example, a car accident can result in a battle that first goes after your insurance, then your assets. As a result, you could face a judgment on your property that goes up 10% every year. 

It happens. But placing your properties in a land trust can be a great way to secure the value of your holdings against a disaster. This assures that your name doesn’t show up in a public record should a litigator come searching.

The prime benefit of this is to ward off contingency lawsuits that might otherwise be taken up against you. Many civil prosecutors will accept a case with payment contingent on what they can win in a judgment. By placing your property in a land trust, these lawyers won’t be incentivized to take the case.

Additionally, a protected LLC can help you secure your assets.

LLCs

With your properties under the umbrella of a Limited Liability Corporation (LLC), your personal assets including your home, bank accounts, and other investments are protected in case of a lawsuit or legal action associated with rental property. Any other rental properties you own outside of the LLC will also be kept separate and secure from any legal action against the LLC. 

These protections are vital for any real estate investor looking to build their portfolio. Additionally, forming an LLC may make you eligible for a tax deduction of up to 20%.

You’ll be able to file your LLC income on your personal taxes for tax savings with pass-through taxation. As a pass-through entity, an LLC allows earnings and income to ‘pass-through’ as individual income for members and investors. Then, tax deductions of up to 20% can apply.

Please consult a tax professional to determine your eligibility.

Equity Stripping

While it may sound counterintuitive from the name alone, the process of equity stripping is all about keeping the value of your property in your hands rather than your creditors.

Through equity stripping, you form an LLC that you privately own. This asset is then held in a distant location—sometimes offshore, like in the Caribbean Islands. Then, the LLC records a mortgage against the property that makes home equity accessible as credit. 

With an equity stripping LLC in place, if worst comes to worst, your assets are ready to be sold off to an international institution that can then buy the mortgage on your property for cash. That cash goes into an international account that will be held until you refinance or sell, enabling you to access your credit without it becoming a target for litigators.

Equity stripping is your last line of defense against a legal disaster. Speak with a financial professional and a legal team to find out if it’s possible with your properties.

Bottom Line

Through protections like land trusts, LLCs, and equity stripping processes, you can ensure that any legal challenges you face won’t result in the loss of your most valuable assets. By coordinating with real estate and financial management professionals, you can take advantage of these protections and come out ahead.

Like with any big decision regarding your asset, take the time to secure legal and financial expertise before you move ahead. Acting on these measures can keep your livelihood safe against the unimaginable, but the preparation has to start now.

For more information on real estate investment and property management, contact 208.properties or find us on social media.