Asset Protection for Real Estate Investors

Real estate is often promoted as one of the safer investment strategies to follow. Granted, it would be inaccurate to say that there is no risk involved with real estate investing. However, there is less risk than what would be found with other real estate plans. However, risk will be present which is why it is vital to take the steps necessary to protect your assets. Remember, when you do not effectively take steps towards asset protection, you run the risk of losing them. Thankfully, there are a few basic steps that can be employed to boost asset protection significantly.

First, it certainly does not hurt to work with a real estate attorney that understands the basics of asset protection. When you try to navigate such a complicated issue from a perspective of limited understanding, you run the risk of undermining your venture. As such, it is wise to consult with those that are experienced in such matters. This way, your asset protection becomes "air tight" and prevents any potential loopholes from developing that can place your personal assets at risk.

If you are purchasing a property "here and there" and holding them for later resale, you generally will have limited assets at risk. However, if you are looking to become involved with wholesaling or other expansive real estate investment ventures you need to clearly define what assets are at risk. At this point, you need to determine a method which will protect those assets.
For those curious as to what is the most common step to take to protect their assets, it would be the setting up of an LLC (Limited Liability Corporation) and performing your real estate ventures under the heading of the LLC. The concept of a LLC is rather simple. You would operate your real estate business/investing transactions under the name of the LLC as opposed to yourself personally. This way, in the unforeseen scenario where you are held liable for something that occurs on your property (i.e. a slip and fall accident), the assets of the LLC (business) would be at risk as opposed to your own personal assets. This type of protection can prove significantly helpful in the case of an unfortunate scenario where the investor is held civilly liable. Similarly, issues of filing bankruptcy could be handled by filing bankruptcy on the business as opposed to personal bankruptcy.

Please note: forming a LLC does not exclude anyone from personal responsibility nor does it provide a means of skirting the law. This is a common misconception. Its prime purpose is to protect for personal asset protection. Nothing more and nothing less is at play here.

Another asset protection method would be to set up a C Corporation. This type of corporation is set up for income tax purposes. When you are wholesaling and involved in more expansive real estate ventures, you probably would be best served filing taxes on the ventures under the C Corporation as opposed to a sole proprietorship. This could help provide more effective personal asset protection as it relates to taxation issues. The goal here is to stay in compliance with all tax laws but keeping the business separate from your personal tax filings.

Any type of expansive real estate investment plan will place a certain amount of your assets at risk. That is why asset protection is vital. It draws the proverbial line in the sand in terms of what assets are at risk and to what degree. That's why exploring options with LLC and C Corporations are helpful. But, there is a much better way to ensure asset protection: make profitable real estate transactions!