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In this post, I’ll share my strategy on how to protect a real estate investment property. Ever since I started investing in real estate, more specifically residential rental properties, I was looking for ways to reduce risk and to protect myself for when something goes wrong.
In the US, anyone can sue anyone for any reason, and while a lawsuit doesn’t necessarily lead to your ruin, it’s good practice to understand the risk factors and to lower risk where possible. The strategies outlined below are what I use for my rental properties in the State of Georgia, but most of it probably applies to other states as well. Before pursuing any of the strategies outlined below, I’d highly recommend consulting with an attorney who specializes in real estate law. That’s what I did.
Common Risk Factors
Negligence is arguably your worst enemy, and no strategy may be able to fully protect you against financial loss if you’re acting in a negligent manner. For example, if you have known (and if there is proof) that the deck overlooking your property’s backyard has been rotten for years and you failed to repair it, you could be found guilty if a tenant gets hurt as a result.
On the other hand, if you could not have known that there was a problem with the deck, maybe caused by a recent thunderstorm, you can still be sued, but the charges are not likely to stick. So-called “Acts of God” generally pose little risk to you.
If you have financed your rental property through a loan or mortgage, the chances are that you have a so-called landlord insurance. That’s pretty much the same as a homeowners insurance, but it’s specifically meant for investment properties. If that’s the case, then one of the things you need to make sure is, that your property is not underinsured. So in other words, the amount your property is insured for matches the real market value and the amount it takes to rebuild the house in the event it gets destroyed.
Additionally, it’s important to make sure your tenants have a so-called renters insurance, which protects their personal belongings, such as furniture. That’s important because, in case of a fire, they can file a claim with their insurance company and not sue you for the loss of their personal property.