As a medical professional, you've worked hard to get where you are in your career and in your financial life. Many medical professionals who also find themselves investing in real estate wonder what the best way is to protect what they have worked so hard for. If you own more than one property, what is the best way for you to protect your real estate assets? Protecting your real estate asset ensures its value not only for yourself in the future but your legacy long after you're gone.
Throughout this article, we will discuss some of the most important things you can do to protect your real estate asset and some various methods that you could utilize in your situation.
Getting the Proper Insurance
Many real estate asset protection attorneys and asset protection managers working with asset protection teams recommend that the first thing you do as a property owner is ensure that you have proper insurance on your property.
Insurance is one of the most popular asset protection strategies used in real estate management. You can protect your single-family home, commercial property, and multiple investment properties in one umbrella policy. Increasing your insurance policy as your portfolio grows is key and will protect you from catastrophic financial ruin in the event of an emergency or natural disaster.
Forbes mentions that real estate investors should consider purchasing both an umbrella policy that "supplements liability coverage you already have through a homeowners policy, an auto policy or another type of policy" and a policy to protect against nature.
Establishing an LLC for Asset Protection
Setting up an LLC for both your rental property and personal assets will protect you personally as a medical provider from potential lawsuits. With an LLC, debt collectors and others can't come after your home to compensate for the issues arising in your business life as a provider.
The properties placed in the LLC are owned by the LLC and not you. In other words, you don't own the property - your company does. This small technicality goes a long way when getting sued, divorced, or pursued by a creditor.
Protecting assets before marriage by placing them in an LLC with only your name on it is another way to ensure that you can protect your assets in the future since you don't own the buildings - your corporation does. Lumping LLCs might not always be the best choice - we will dive into that below.
As a general rule of thumb, when establishing LLCs and maximizing the protection you offer your assets, you should create more than one LLC when you have more than $250,000 in equity in one property.
You never want multiple properties that have equity and need protection in the same LLC - this could be a domino effect if one property suffers a loss, damaging the rest of your portfolio.
Liability Exposure - Single Family Ownership vs. Multi Member LLC Syndication
The liability exposure you have when investing in just one single-family home is low when comparing it to multi-member syndication. Multi-member syndications are designed to pool funds from multiple investors; this could be co-workers, family members, or business partners looking to purchase property with you.
Since generally less money is involved in purchasing a property in a multi-member LLC syndication, this limits your liability exposure significantly.
Syndication structure LLC work can be done on your property by a real estate attorney if this seems like a good option for you.
Protecting Your Assets, Including Real Estate Investments from Creditors
Creditor claims on a property can be damaging. Can a creditor take your home? Is a secondary home protected from creditors? Is my home safe from creditors? All these questions and more come to mind when thinking through how to protect your assets and real estate investments from creditors. If your home is not in an LLC, then yes, a creditor can come after your home or secondary home. But what else is at stake?
Creditors can take the following to settle debts:
Some of your income
Your bank account
Homes if you personally own them
What can a creditor NOT take?
401K or other retirement savings, including an IRA, 529, and ROTH
Typically creditors cannot go after life insurance policies
If securing your assets against a potential creditor in the future is a concern for you, then we suggest meeting with a real estate attorney familiar with finance law who can help guide you in the right direction to secure your assets.
The best thing you can do with your own property as a medical professional is to get in contact with a real estate asset protection attorney or asset protection manager in your state to protect your critical assets. If you're unsure where to start, the best first move is to ask real estate professionals in your area for their advice.
*This is not intended as financial investment, or other advice.
For more information on how you, as a medical professional, can protect your assets and continue to grow your portfolio in the future, please be sure to check out my blog.
David Price MD is the Founder and CEO of getFREED, a business providing real estate education and vetting of individual deals to help physicians and other healthcare professionals build a passive stream of income, allowing them to work less and practice on their terms.
David lives with his wife and two daughters in Atlanta, GA, USA.
To find out more about David and getFREED, head to http://www.get-freed.com.