How to Protect Your Real Estate Investment
Real estate investments are a valuable asset that can bring in substantial profits. However, they also come with certain risks. It’s important to safeguard your assets through time-tested strategies.
Many investors make mistakes that put their assets at risk. Learn about land trusts and LLCs that offer the best protection for your investment properties.
1. Homeowners’ Insurance and warranty
Homeowners insurance isn’t just a luxury; mortgage companies often require it before making loans. It’s also a smart investment protection strategy that can help protect against potential losses like theft, natural disasters, and home price declines.
Landlord insurance is another good option for investors who own rental properties. It’s typically cheaper than homeowners’ insurance and includes property damage, loss of rent, and landlord liability coverages.
Home warranties are important and many homeowners who have the warranty say it provides them with a peace of mind. Protection with a home extended warranty can cover you when there are kitchen appliances needing repair or a home plumbing or electrical problem.
Finally, registering a property as a homestead is an option that can protect real estate investments from creditors and other parties who might pursue legal action. It’s only available for primary residences and there are some restrictions, so it’s not a foolproof solution. Using landlord insurance, creating an LLC, and limiting debt are other strategies that can protect real estate assets from certain liabilities.
2. Renters’ Insurance
Real estate investors who plan to rent out a home or apartment should consider taking out rental property insurance, also known as landlord’s insurance. This specialized form of insurance covers damages and injuries that may occur on the rental property. It typically includes personal liability protection to cover attorney fees and medical treatment if someone gets hurt on the premises. It also includes coverage for lost income, damage to the dwelling and additional living expenses for the tenants when a disaster causes the property to be uninhabitable for a period of time.
Landlords can take a proactive approach to protecting their investment by creating a home inventory that lists all their belongings and estimates their value. They should also check if their policy provides coverage for one-of-a-kind items like sports memorabilia and antiques. If not, they can add this coverage by purchasing a separate rider. Adding these riders can be cheaper than paying for the cost of replacing these valuables out-of-pocket in the event of a fire or other disaster.
3. Landlord’s Insurance
Owning rental property is a great way to build wealth and generate income, but it also presents certain risks. When a fire destroys a property or a tenant falls and hurts themselves on the premises, out-of-pocket costs can add up quickly. Plus, lawsuits can put your personal assets at risk. Purchasing landlord insurance and using strategies like creating an LLC and maintaining a conservative amount of debt can help you limit your personal exposure.
Landlord’s insurance can cover structure damage, liability concerns and some personal property such as appliances and lawncare equipment. It can also provide loss of rent coverage to cushion the blow of a sudden rental income halt due to property damage.
Some policies also allow you to scale up “Other Structures” coverage to protect sheds, garages and other structures on the property. In addition, some policies offer optional riders to address specific issues, such as petty crime in a densely populated area or hurricane exposure for coastal properties.
4. Home Equity Line of Credit
If you’ve built equity in your home through consistent mortgage payments, a line of credit may be an option for you. However, before you take advantage of this type of financing, you should know that it involves using your home as collateral and, if you fail to make your payments, the bank may repossess your property.
A HELOC is similar to a credit card in that you can borrow money, pay it back and draw on the line again during a set period of time, which typically lasts five to 10 years. The interest rates are often lower than other common types of loans and may be tax deductible, but it’s best to consult with your tax advisor.
If you’re interested in leveraging your home’s equity for more cash flow, connect with one of the loan providers who have more information. They can walk you through all of your options for making that dream a reality.