Introduction
The market is soft, so you might be thinking now’s the right
time to buy a rental property and hold it. And you’d be right, it IS a good
time to buy and hold, but there are a few things you should know before writing
any big checks and diving in headfirst. Here are few ways to protect yourself
from litigation and other legal issues related to real estate and being a
landlord.
Legal Protection Strategy 1: Real Estate
Ownership Type
All too many smart people make an easy mistake when they
first start buying real estate as an investment: they buy it 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, which is
clearly a problem.
Solution: Create a legal entity (e.g. an LLC) to purchase
property under, and make sure someone else (a spouse, for example) 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.
Legal Protection Strategy 2: Use An Airtight
Lease Agreement
If anything goes wrong with the tenant or property, EVER,
then 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. Try
here for a good database of
state-specific lease agreements, that can be customized to contain
the legal language you want to include.
Legal Protection Strategy 3: Issue Proper Real Estate Legal
Disclosures to Your Tenants
This cannot be understated: if you don’t issue to your
tenants the legally required real estate disclosures, THEY CAN SUCCESSFULLY SUE
YOU LATER. The most common example is lead-based paint disclosures, which
legally must be given 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 use the State
Assist in the site above to check local real estate and landlord laws, and if
need be contact a local
real estate attorney , specializing in landlord – tenant law.
Here are some
landlord - tenant legal disclosures, that may be useful in your
state.
Legal Protection Strategy 4: 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.
Conclusion
No one likes to be sued, so do everything you can to avoid
it by finding good tenants and keeping them happy. And, of course, prepare for
the worst by being protected in your legal ownership of your real estate
investment property. Good luck, and hopefully, you’ll never experience the
nightmare of a real estate landlord lawsuit.
Post a Comment