Although we are knee-deep in a real estate funk right now due to the credit crunch, I still do believe real estate is one of the best investments there is. It is tangible, you can buy insurance to protect it from destruction, you can safely leverage it to acquire it, you control it’s value to a large extent, I could go on, but I won’t.

There are things you can do to protect your investment and your other assets from legal and financial harm. First, have your own lawyer who advises you when you buy a property. Try to get classes of assets separated out in the sales agreement- buildings, land, land improvements (parking lots, sidewalks, fences) personal property (refrigerators) so they can be depreciated separately. Do not put real estate in a C-Corp, do not just own it personally, but put it inside an LLC. You do not want something bad that happens to affect all you assets, so you need to isolate assets where possible. Very important: Make sure the tenants and the vendors know it is an LLC, it can’t be a secret or it offers you no legal protection.

Do not make repairs yourself, hire contractors. Why? If you fix the steps yourself and your tenant falls and sues, you will be liable for things you do yourself, no matter what legal form the business is in. Carry a good amount of liability insurance- in the millions, it’s very inexpensive insurance. If you create an LLC for property you already have, don’t forget it then has to be legally transferred into the LLC and then let everyone know they are dealing with an LLC. Have the tenants make the checks out to the LLC, get the checking accounts titled that way, and so forth. Do it right.

Your role is to manage the property- make leases, arrange repairs, keep the books, pay the bills, deposit the rents. If you own separate properties, have each in their own LLC. Beware there might be transfer taxes to pay if you are doing this after-the-fact. If the cost to transfer to an LLC is prohibitive, then you are going to have to load up on liability insurance- 5-10 million. 

Despite what you may read and hear out there, an LLC (Limited Liability Company) does not protect your business from being sued if your own work is being performed by you in the business. In other words, an LLC does NOT protect you from your own actions. If you are a doctor or a plumber, and you do the work, an LLC will offer you no protection whatsoever. If you have employees, and THEY do the work of the business, that’s a different matter. Consult with your attorney to find the best form of business for your business. Also consult with your CPA, if they disagree, have them talk to each other and you to settle on the best choice. If your business is new, simple, just you, maybe a sole proprietorship is best. It is certainly the easiest. If you use your own name and what you do as the name of the business, you don’t even need to get a fictitious name.