Whether you are investing in your personal home or commercial property, you need to be proactive about protecting your assets. There are a few key strategies that you can incorporate into your real estate asset protection plan.
From lawsuit prevention, like acquiring insurance, to creating legal obstacles for creditors, like an anonymous trust, to discourage them from filing a lawsuit, you can use layers to protect your investment.
Homeowners Insurance
Few investments are as lucrative or long-term as real estate, but it can also be risky. That’s why it is important to protect your home investment with homeowner’s insurance.
Homeowners insurance provides coverage for a variety of situations that can cause damage to the property and its contents. In addition, it can provide liability protection in case someone is injured at your property or if you accidentally damage their possessions.
Most lenders require mortgage holders to carry homeowners insurance as a condition of receiving a loan to purchase the property. However, if you are able to purchase your property with cash, you may choose to obtain a separate policy.
You should also be aware of whether your policy offers actual cost value or replacement cost coverage, as this can affect how much you will receive for your loss. Policies that cover the replacement cost are typically more expensive, but they will give you more peace of mind. This is different from home warranty so if you are wondering, “What is home warranty coverage?” make sure you learn more about it to know what coverage to get for your home.
Renters Insurance
If you’re thinking about investing in a rental property, it’s important to know how to protect your investment. One of the most important things to do is obtain renters insurance. This type of policy protects tenants’ personal belongings from damage or loss caused by fire, theft, and other catastrophic losses. It also provides liability coverage to pay for legal fees and court awards in the event that a tenant is sued for injuries or property damage they cause to others.
A good rule of thumb is to buy enough coverage to replace your belongings at the time of a covered loss. You can determine what your belongings are worth by creating a home inventory with photos or video, and then using a replacement cost calculator to estimate how much it would cost to replace each item.
Many policies also include additional living expenses coverage, which pays for hotel stays or restaurant meals if a disaster makes your home uninhabitable. Some policies also have a personal property floater rider to cover items of high value, such as jewelry, computers, and musical instruments.
Landlord Insurance
If you own a home and plan to rent it out on a regular basis, then landlord’s insurance is a must. Standard homeowners policies won’t cover rental properties. This type of policy varies, but typically covers damage to the property as well as liability protection for lawsuits that may arise from tenants or their guests.
Landlord’s insurance is more expensive than a typical homeowners policy but it provides specialized coverage for your investment. For example, you can add loss of rent coverage if the property is destroyed by fire.
As a homeowner, you can help to reduce your landlord’s insurance rates by installing security systems and taking other measures to make the property safer for your tenants. This includes keeping the building free of safety hazards like broken steps, loose wires and icy walkways. Liability protection also helps to offset the expenses if your tenant or their guest is injured on your property. This type of coverage can pay for legal fees, medical expenses and property repairs.
Home Equity Line of Credit
A home equity line of credit allows homeowners to access the value they’ve built up in their homes for renovations, other expenses or alternative debt repayment. However, borrowing against your home has its drawbacks, so it should only be used by savvy investors who understand the risk and benefits of this type of financing.
A HELOC is a second mortgage that gives you access to cash based on your home’s value (minus what you owe on your primary mortgage). Most lenders will allow you to borrow up to 85% of your total home equity, but each lender has its own formula for determining maximum credit limits.
HELOCs work much like a credit card in that you may withdraw funds as needed, but you must pay back the borrowed amounts with interest on a monthly basis. This can help you consolidate your debt and improve your , but it requires discipline to avoid unnecessary withdrawals.
