How To Protect Your Assets As A Rental Property Owner

A soft market means it is a good time to buy and hold. But before writing any big checks there are a few things you should know to …

A soft market means it is a good time to buy and hold. But before writing any big checks there are a few things you should know to protect yourself from litigation and other legal issues related to being a landlord.

Obtain a legal entity to purchase property

Too many smart people make the mistake of buying rental property in their own name. This has some serious legal implications, as it will immediately show up as an asset if someone decides to sue you. Furthermore, if the tenant of that property sues you, they can legally go after all of your other assets.

Create a legal entity (like an LLC) to purchase property under, and make sure someone else—such as a spouse—owns it with you. This will make it harder, though not impossible, for someone to take your hard-earned assets from you in litigation. As a final note, restrict how many properties each of your LLCs owns, as anything owned by that LLC is vulnerable if the LLC is sued.

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Use an airtight lease agreement

If anything goes wrong with the tenant or property, the first piece of paper produced in court is the lease agreement. What makes a good lease agreement? Well, that’s the subject of an entire article in itself, but first and foremost it must conform with state and local laws.

Issue proper real estate legal disclosures to your tenants

If you don’t issue the legally required real estate disclosures, your tenants can successfully sue you later. The most common example is lead-based paint disclosures, which you must give to tenants (typically along with a lead-based paint inspection certificate) when they sign the lease agreement. However, each state has different laws regarding what must be disclosed and when, so check local real estate and landlord laws, and if need be, contact a local real estate attorney specializing in landlord-tenant law.

Screening tenants and good property management

How to Screen Tenants is an art that needs more attention than I’ll give it here, so read the linked tutorial.

Property management is also a nuanced and tricky beast, but to be brief, an attentive landlord who responds to his tenants when they call will be drastically less likely to be sued. When your tenants call about a problem, call them back. When there’s a problem with your real estate investment property, fix it. Establish a personal, first-name relationship with your tenant. They’ll appreciate it, and be less likely to sue you for your legal assets if there’s a problem.


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