I wanted to share a few ideas about asset protection to help you on your way to success in your investing career. You don’t have to be rich to start thinking about and implementing asset protection strategies. It is better to start and get in the habit while the amounts are small. This is similar to tithing. Tithing is much easier if you start while the amounts are small. Example: It is much easier to start tithing when you are taking a dime out of a dollar than it is to start when you are faced with giving $100,000 out of a million. Wouldn’t you agree? Lets look at some basic principles of asset protection that anyone, and I do mean anyone, can use. I also want you to keep in mind to try and keep your life as simple as possible. Don’t try to over complicate things. The older I get the more simple I want my life to be especially when it comes to protecting what I have worked very hard for. Here are some ideas to help you along the way.
1: Keep quiet about what you own. It’s not a good idea to be telling your tenants how many houses you own or telling you neighbors how much you make buying houses. You never know when someone will use it against you. Just be careful and keep you mouth shut.
2: Use a Post Office Box. Just trust me on this. You don’t want a tenant showing up at 11:00 pm to pay the rent to avoid a late fee. Always have all correspondence go to the post office box of your office if it is separate from your home address.
3: Don’t be too flashy. It usually seems that the flashiest people are just one payment away from being behind. If they missed a week of work they would miss next month’s payment on something. It just doesn’t make good business sense to buy too many toys. Anyway, just think of all of the things you could do with the money and put it to work for your future.
4: Always use an attorney to close your deals. This may sound basic but I know of some people that draft deeds and close the deal at the kitchen table of the seller’s house. I wouldn’t recommend this. If you use an attorney at least you have the safety of knowing that everything you are doing is legal.
5: Always get title insurance and an owner’s policy. Sure, an attorney did the title search and the lender (if there is one) purchased a title policy but did you know that the title policy only protects the lender? To protect yourself you need to get an owner’s policy. The attorney will usually ask you if you want one. It is a one-time fee and it is not very expensive at all. The owner’s policy will protect you if someone in the future has a claim against your property. For example, if, in five years after you purchased your property, you get a call from a person who claims to be related to the person who sold you the house and they have a deed that shows your seller gave the house to them before he sold it to you. The title insurance policy would fight the battle for you. Don’t take any chances, Get title insurance.
6: Make sure you have enough insurance. As you start to accumulate assets, you want to make sure that you have and keep enough insurance on your properties. It is a good idea to evaluate your policies every couple of years and compare them to the current value of your properties to insure there is enough coverage due to appreciation. If you are doing rehabs or flipping properties you will need a builder’s risk policy. Even though this is expensive insurance, it is well worth it since it covers the property while it is vacant and being repaired.
7: Get an Umbrella Insurance policy. This is a policy that extends the limits of your liability policy. They are sold in $1,000.00 increments. They are very inexpensive. They will cover any liability losses over and above your homeowner’s policy or auto liability policy. They are only issued to individuals so if you have a business, you will also need a company liability policy.
Larry Goins is a regular guest speaker at CT REIA. Go here for the current list of upcoming real estate investing seminars in Connecticut.