ARTICLES
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Forms of Ownership for Residential Real Estate InvestorsBy Pierre Mouchette | Real Property Experts LLC
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Owning any type of investment real estate in your own name (joint ownership, joint tenancy, or community property) is a big mistake! This is one of the biggest mistakes that the new investor can make, and hopefully after reading this ARTICLE they correct that mistake.
The way you hold title is often a key factor in determining who is liable for injuries on the property. For example, if you hold title in your name, and an injury occurs on the property due to your negligence, then the liable party will likely be you. Worse yet, the judgment is against you personally so that the judgment creditor can seize all other assets you own in your name. This is a great way to lose everything you own. Even worse is to own assets in joint ownership, specifically, joint tenancy and community property. When your joint owner does something wrong, you can now lose all the assets you own jointly with them, even though you did nothing wrong yourself.
The solution is to own assets in an entity, such as a Limited Liability Company (LLC). Now, when an injury occurs due to the negligence of the owner, i.e., the LLC, the liable party is now the LLC. Only the assets owned by the LLC can be used to satisfy the judgment. In other words, using an entity to own assets protects your personal assets in a lawsuit.
The way you hold title is often a key factor in determining who is liable for injuries on the property. For example, if you hold title in your name, and an injury occurs on the property due to your negligence, then the liable party will likely be you. Worse yet, the judgment is against you personally so that the judgment creditor can seize all other assets you own in your name. This is a great way to lose everything you own. Even worse is to own assets in joint ownership, specifically, joint tenancy and community property. When your joint owner does something wrong, you can now lose all the assets you own jointly with them, even though you did nothing wrong yourself.
The solution is to own assets in an entity, such as a Limited Liability Company (LLC). Now, when an injury occurs due to the negligence of the owner, i.e., the LLC, the liable party is now the LLC. Only the assets owned by the LLC can be used to satisfy the judgment. In other words, using an entity to own assets protects your personal assets in a lawsuit.
- The issue here is some states LLC’s are very weak from an asset protection standpoint. A way to get around this problem is to hold assets in a trust or even an LLC owned by an LLC.
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RPE Category (Digital Digest)
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REAL ESTATE | REGULATIONS | Legal
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PUBLISHED:
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February 11, 2021
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