How to Limit Liability For Rental Property Owners
Rental property owners run the risk of liability from various situations. A tenant could sue them for monetary damages arising under the rental agreement, someone could be injured on the property from a fall or a dog bite. If a rental property owner owns multiple pieces of real estate, there is a genuine concern that other locations could be at risk as well as the owner's personal assets.
There are ways to limit a rental property owner's personal liability. If an owner owns the property in their own personal name, it could put their personal assets at risk if they are sued, including their personal residence. It could ruin their net worth and their life's savings if they are found liable. A property owner can limit their personal liability by owning the rental properties in a Limited Liability Company (LLC). The LLC will shield the owner's personal assets and limit the risk to the assets of the LLC only.
If a rental property owner owns multiple rental properties, there may additional options to further limit liability. While putting the properties into one LLC which still shield the owner's personal assets, it puts all the properties at risk. One way to address this is to create separate LLC for each location. Each rental property should be owned by a separate LLC. That way if a tenant sues for damages or someone is injured on the property and sues, they are limited to what the LLC owns, namely that particular property. It will shield the other rental properties owned by other LLCs.
Finally, a rental property owner would be wise to review their property insurance policies to make sure they have sufficient coverage to cover any potential liability and injuries. Additionally, they should maintain an umbrella policy to provide additional coverage over and above the main property insurance policy.
While there are many risks for rental property owners, these are some ways to protect the owner from personal liability and to protect the various rental properties. Proper planning will provide for long term success of the property owner's rentals and provide necessary protection from liability.