Being fully covered against Tenant Lawsuits / Rental Properties

[Ron Alexander]

Hello Everyone,

I owned 3 single family homes,I used to rent 2 of them and decided to sell all of them to have money to go into flipping,the reason I decided to do this and quoting rentals is that I am OVER (maybe not..) paranoid .. paranoid about being sued by a potential tenant and who knows maybe losing the assets or maybe worse who knows.. I used to be a very caring landlord,responsive and of course proposing a great house in Good condition,but for 2 years I was almost not sleeping at night thinking an accident/personal injury/mold related health issue could happen and consequence of this would be them suing me for eventual High medical bills or else,which could mean losing one or more of my single family homes as they were all under my personal name,

The point of my post is that it seems you cannot follow a "by the book equation" that would 100% prevent you from this to happen

Okay I had the biggest umbrella policy up to 5 Million in coverage,but I have a limited trust into insurance companies,I can easily imagine them finding a way to not cover the problem if needed with some clauses

I always was specially paranoid about MOLD,especially with the houses being in Florida,although the premises seemed to be totally ok at move in,you will always be told that there are some mold in houses in general,so the situation could quickly change without you noticing even with constant control,

I add a very nice old couple as tenants but at one point they were telling me they had health problems because AC was not working for a day in order to have it fixed quick(of course as usual I respond or act fast to resolve the issue but this just ringed to my mind what could happen if they would get very ill and need to pay a crazy medical bill...),it never went further than this but there is a millions reasons I wouldn't be aware that could eventually result in the property being the source of the health problems,or worse they could hire an attorney that could help put the responsibility on me,

Do you guys always change all the plumbing on your rentals houses?my houses are old 50's or 60's home,and could have cast iron pipes,who knowns people could get sick because of that and I doubt someone would cover this,the list of eventual issues seems endless to me..

My question is how can I sleep at night and take advantage of the great potential of rental investments?

In my opinion if I had to do it again I will separate each house into an llc with proper insurance for each llc (Although I have read that this can be pierced and is not that useful for protection)

But the insurance coverage is what scares me the most,

If I do it again I want to do it right,and by right I mean sleeping at night :)

(because I am the type of person looking after the tenant and the property but I know how people can become if confronted to a tough situation where they would have to pay medical bills they can't afford unfortunately..)

Your experience are and advices are greatly appreciated,

Thank you!

[John Underwood]

First with any investment there is risk. You can mitigate it. If you own a rental or two and can't sleep worrying about someone suing you then you might look elsewhere than any real estate investment.

That said you can add many layers of protection.

Individual LLC's for each property help by a master LLC held by a Trust etc to give you layers of protection.

Insurance is your first line of defence, an umbrella adds another.

Having properties mortgaged makes them uninviting to an attorney that may want to see if you have any assets worth taking.

You can consult a Estate planning attorney for guidance on different strategies.

If you are risk adverse you might want to look else where to invest your money.