Why You Need a Real Estate Corporation

Real estate is usually a sound investment. I would remiss if I didn’t use the word “usually” considering the little hiccup we experienced in 2008. Investing in real estate is sound, but you need to know pay attention to what way the wind is blowing.
Still, real estate is a good investment 99.9% of the time. Just make sure you consider the following:
You’re liable for your property. You need protection. You will most likely use an umbrella insurance policy or an LLC to protect yourself.

Insurance vs. LLC: Which is Better?

An umbrella policy adds additional coverage to the insurance you already have.
Now, if Demi Moore has 100k worth of liability coverage and business general liability is 500k, than a $1M umbrella policy is going to give you 1.1 M in pool liability coverage and 1.5M of general business liability coverage.
So, an umbrella policy doesn’t insure anything that isn’t insured. It’s more like a top up on a half full tank.
Let’s say you provide home appliance repair services and somebody sues you for a failed repair. If your general liability doesn’t cover those repairs, you’re umbrella policy is about as useful as that appliance you failed to repair. So, in short, don’t get an umbrella unless you’ve already got your rubber boots: You’re umbrella won’t keep your feet dry when the flood of litigation comes.
LLCs are 100% necessary if you want to keep your feet dry. Your business assets are at risk in a lawsuit, but if you don’t have an LLC, you could lose your home. Don’t get caught barefoot in a flood. Make sure you have your coverage.
The cost of an LLC is a few hundred dollars. You’ll pay yearly fees as well. $50.00 to $200.00 a year is the average, but it’s different in every state. You are going to pay monthly for an umbrella policy. About $1200.00 a year will get you a million in coverage. Umbrella policies have benefits such as attorneys that will be appointed to defend you, but they also have exclusions. You have to know what they are. An umbrella won’t save you from the storm if it’s full of holes.
Now for the million dollar question:

What Type of Company Structure is Best For You?

Well, it depends on what you own. If you have multiple units or commercial property, you want a lot of coverage because you have a lot of tenants. Tenants are people, and people can be very stupid. On the other hand, if you only have a single family, one policy might be enough.
You’re going to have to do some homework here and consider the risks. Bottom line, if you own property, you are going to face catastrophes. Be prepared. When the storm passes, you’ll be dry as a bone.
If you need specific advice on the best method for forming your real estate corporation, schedule your personal consultation today.

Last Updated: 
December 7, 2017

Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.

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