Having investment property is a great way to make some extra income, or it may be your sole source of income. But, rental property can also be a source of great potential liability, whether from a fall in the driveway to a fire in the property. When an accident happens and the basic liability insurance on the property is not enough to compensate the victim, the wronged party will seek recovery from the owner of the property. If that owner is you individually, then your personal assets – bank accounts, home, etc. are all open for the taking in a lawsuit.
There are two basic ways to protect yourself. The first is to make sure that the property is properly insured for liability. Many rental owners have an umbrella policy to give the added protection above and beyond the normal liability limits. Please discuss this with an insurance agent, or contact me for a referral.
The second way (or an additional way) is to incorporate a limited liability company (LLC) with the State of Ohio and transfer the property into the name of the LLC. Thus, if a tenant does suffer harm, that tenant can only seek recovery from the LLC itself and not you as an individual. There are some added “hoops to jump through” if the property is in an LLC, but many clients find the benefits outweigh any downsides.