Rental real estate has, in recent years, been a relatively good investment, both appreciating in value and generating a reasonable return. People who are handy (and you have to be handy if you are going to buy residential property for investment purposes) will buy a piece of rental property, probably fix it up, and rent it.
But real estate comes with risks. You, as the owner, are ultimately responsible for any injuries that occur on the property. That can even be true if you are not in control of the property or if people come onto the property without your permission. And even if you are not actually liable yourself, you might have to go to court to defend yourself against a claim of some sort. So, there can be costs associated with owning real estate.
I recently had a client who owned a 2-family flat in South Saint Louis. They let their daughter live there. She was paying utilities, taxes, and a little something towards the mortgage, but not everything. She was also responsible for maintaining renters’ insurance.
She had a little dog. Her parents had told her she couldn’t have a dog while living in the house, but there it was. She had a friend over one night (more of an acquaintance), and the little dog bit the friend. It didn’t seem like a bad bite, but it was treated inadequately in the ER and got infected. She ended up in the hospital for several days, which (as you can imagine) was very expensive.
The acquaintance sued. Even though the parents didn’t know that the dog was there, they got sued, too. The daughter had insurance, but it was renters’ insurance, which apparently does not cover dog bites. The parents had liability insurance, but at first, there was some question about whether the dog bite was covered. After some time, the insurance company determined that it was covered, including the cost of defending the case. But what if the damages had been more and insurance didn’t cover it, or what if there wasn’t insurance?
If you own real estate and other people come onto the property either with or without your permission, you could be liable. You may or may not have enough insurance, but you may not know until it’s too late. And if you don’t have enough insurance, your other assets could be at risk. I always encourage clients to put rental real estate into a limited liability company. If operated properly, an LLC will limit liability to the company, protecting your other assets. It’s something to think about.
If you want to talk, give me a call.
