Rental properties and law suits

[Rama Krishna]

Hi All,

 I was doing some networking over the weekend with a person who made big in the Commercial real estate (retail) and he suggested me that, first advise I can give you is, don't deal with people/ rentals. Because one lawsuit by tenant your entire portfolio is in trouble. I have heard this same tone from another person with whom I was trying to pitch and get funding. You are planning to invest in all these rentals (Single and multi-family) what if some tenant files a law-suit on us?

My questions:

1) What will be typical scenarios where tenant files law suits?

2) So is it better to buy only in landlord friendly states

3) Should we protect all assets under LLC?

4) What if we have multiple single families in different states?

5) Do we need to take umbrella insurance?

If we do all these and it eats our cash flow, what is the point? For a medium to large multi family we can cover these costs, but small portfolio of rentals in different states, i am thinking its hard to manage these stuff.

Any pointers? suggestions?

Thanks for help,

Rama

[Carl Fischer]

@Rama Krishna

You need an asset protection plan  as @Ashish Acharya said a single post is not the answer. 

First from the funder/lender point of view -they are the bank and are in first position and will get paid even if you get sued. Some people use the lender (equity stripping) as asset protection-no equity no reason to suit. 

Insurance, Trusts, property management, single and multiple member LLCs, C Corp, equity stripping, etc provide protection, ananymity, separation of assets, etc which are key in a multi faceted asset protection plan. Disconnect properties from each other to the extent that makes sense to you -there is not one answer fits all.  

Some Tenants will suit for anything and everything-trips/falls, illegal leases, discrimination, escrow handling, bed bugs, not answering phone, etc. especially if they have attorneys in the family.