Real Estate Asset Protection and Preservation Tips

Real estate – whether it’s the home you live in or rent to someone else - is an asset that an experienced Real Estate Attorney can help you protect. As of July 2023, 65.9% of Americans owned a home, and 10.6 million Americans (7.1%) earned income from rental properties.

These real estate assets need to be protected.  The U.S. holds the top spot in the world for the largest number of lawsuits with 40 million lawsuits filed every year. In August 2021, approximately 64 million Americans (about 28%) had debt in collections on their credit report. Lawsuits and debt collectors can jeopardize your real estate assets. You should take precautions to protect them.

What is Real Estate Asset Protection and Preservation? 

Real estate asset protection is a mixture of different strategies designed to help protect your real estate and other business and personal assets from lawsuit judgments and creditors. For example, if someone is injured on your rental property and wins a lawsuit against you, you could lose your rental property (and more) if you don’t have proper real estate asset protection.

Protection strategies involve preventing adverse incidents (like an injury), reducing the financial impact of adverse incidents, and transferring the financial risk of damaging incidents. The proper real estate asset protection helps minimize the impact of the lawsuit and helps keep your personal and business assets separate so you don’t lose everything.

Real estate asset preservation is often used interchangeably with asset protection, but it is different. Real estate asset preservation is a mixture of strategies designed to minimize taxes and other factors that impact your real estate’s value.

Real Estate Asset Protection and Preservation Tips

Avoid Risk

Preventing something bad from happening is almost always better than dealing with the consequences. You can take several steps to avoid risk, such as keeping your property well-maintained, working only with trusted and insured vendors, paying bills promptly, taking security measures (i.e., cameras, alarms, etc.), thoroughly screening tenants, drafting comprehensive rental agreements, etc.

Insurance

Rental properties need to be properly insured. Not only should the property be protected from a loss such as fire, there should be liability insurance with sufficient limits to cover claims like a slip and fall.

File as a corporate entity

Forming a corporate entity, such as a Limited Liability Company (LLC), helps protect your personal assets from lawsuits and creditors related to the business. A corporate entity establishes your business as a separate legal entity to shield your personal assets.

Create a Property Trust

“A property trust is a legal entity that allows property to be passed from the person who created the trust (the grantor) to the person they want to inherit their property (the beneficiary). A trustee oversees the trust and manages the assets in the trust on behalf of the beneficiary, according to the grantor’s instructions,” Rocket Mortgage explains. “The main benefit of putting your house in a trust is to bypass probate when you pass away.”

Holding a property in trust can also provide privacy. Because it’s held in a trust, it may be harder for a creditor to find out who owns the property. It may also help protect your real estate assets.

Equity Stripping

“Equity stripping – the process of reducing the equity value of a real estate asset – is one of the oldest asset-protection strategies. Essentially, it entails encumbering a property with debt to such an extent that there is little or no equity for creditors to acquire,” Investopedia explains. “By giving another party a claim against the property, owners retain control over the cash flows and use of the asset while making the property unattractive to those trying to perfect any type of legal judgment.” Equity stripping strategies include a home equity line of credit or a second mortgage.

Estate Planning

Estate planning – wills, trusts, etc. – helps protect you and your family by preserving, managing, and transferring wealth, and tax planning strategies within an estate plan help maximize the value of your estate.

Contact the Experienced Real Estate and Estate Planning Attorneys

The experienced team of real estate and estate planning attorneys at Bingaman Hess can help you with various real estate issues, such as lease agreements, real estate litigation, and real estate asset protection and preservation.

Start protecting your assets today: call the law firm of Bingaman Hess at 610.374.8377 or find us online.