Posted by Rob Minton
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Throughout this economic downturn, when home prices are as low as they've been in forever, real estate investments remain a fantastic opportunity.
As lower prices translate into cash flow in areas that previously could not generate positive cash flow, there are sure to be beginning real estate investors. My hope is that these beginning investors have someone to turn to for guidance when it comes to their new real estate acquisitions.
For example, I just read a Forbes.com article on avoiding litigious tenants. There's a great reminder in the article, one that I have always tried to drive home with Income for Life member investors.
The article advises:
"Before becoming a landlord, it's important to get a grip on the fact that a rental home is a small business. Legally, it's similar to setting up restaurant or opening a flower shop. If an accident or a crime occurs on the premises, it's you the victims will go after."
Owning rental properties IS running a small business. There is just no other way to look at it. And, like the article suggests, you must set this business up properly. Yes, a rental property is profitable for many reasons, but just like a business, it brings with it liabilities.
These liabilities are minimized when you do things such as:
- Put the property's ownership in a limited liability company (LLC)
- Become properly insured (liability insurance, not just hazard insurance)
- Set up business checking accounts for the properties (don't use your personal checking)
- Require your tenants to carry renters' insurance
The main goal is to separate your personal assets from your real estate investments. This is an important asset-protection strategy that Income for Life members learn and get guidance from their coach on.
While this recession we are in will launch the careers of some successful real estate investors, it's important to remember that real estate investing is a business in itself, and you must educate yourself on how to run that business.
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