How do you Protect yourself with Rental Properties?

[Jonathan Shnoravorian]

Other than an LLC, what's the best way to protect yourself and your assets when you have a rental property? I am a resident of Los Angeles, CA - and am in the process of buying my first rental property here. I'd like to hear of some ways, aside from LLC, where investors protect themselves from potential lawsuits/headaches.

[Nathan Gesner]

A couple things:

1. The BEST way to protect yourself is to know the law, obey the law, ensure the property is safe and functional, and treat people honestly and fairly.

2. Umbrella insurance is basically additional liability insurance to protect against lawsuits, not to protect belongings. If the tenant sues you for $1 million and your homeowner insurance only covers $300,000, then the umbrella insurance would cover everything over that amount.

3. Set up an LLC. You can create a Wyoming LLC for less than $200 and it's all online, it's anonymous (your name won't be on the filing documents), and super simple. I just created one two days ago and it took me about 30 minutes on the computer.

People exaggerate the need all the time. There is very little risk of being sued for an honest Landlord. Even if you are sued, there is very little risk of losing. Even if you do lose, the loss is likely to be a few thousand dollars. Even if it were a huge settlement, your insurance would cover it. The odds of being sued for such a large amount that your insurance wouldn't cover it and you would lose the investment property is astronomically low and not worth losing sleep over.