built-in liability. One of the biggest problems I see with rental income property owners is that they don’t act like they are running a business. Many owners inherit property that has been in the family for years. Maybe they even grew up in the property that they are now renting, so the property doesn’t “feel” like a business. It’s property they are familiar with that has been around for years and they did not “start” the business. Even owners who bought the first property don’t always treat the property as a business. You can get yourself into a ton of trouble by NOT treating your
rental income property as a business. Let’s take a look at the idea of using the proper legal structure for your property. I want to start by identifying the two types of liability associated with rental property. They are inside liability and outside liability. Inside liability stems from liability that is associated with the property. This can be tenant liability, such as a mold claim, a dog bites someone on the property, a worker falls off the roof and gets injured, and on and on. An outside liability is a liability that happens
away from the property. This could be an IRS issue and they are coming after you, liability from a separate business or you injure someone in a car crash. Here’s where we get into legal structure. Let’s say you start a manufacturing company. You would never ignore the process of picking the proper legal structure for that business. You would carefully look at the different structures such as a corporation, limited liability company (LLC) or partnership and make the right decision so that you protect the business and protect YOU. This is part of proper asset protection
planning. Many property owners don’t give the same attention to the proper legal structure as other business owners do. I see property owned in individual names, in a living trust or joint names with a partner. Big mistake! You get ZERO asset protection when you own your property this way. For most situations, a properly built limited liability company is the way to go for a property. I want to bring inside and outside liability back into the discussion here. Think of an LLC as a force field around your property. You have a tenant who is suing
P A G E 7 0
Powered by FlippingBook