May 2018

Protecting Investment Property from the Rush of Vacationers

In today's litigious society, we often have clients calling us and asking for advice on how to protect themselves and their assets from creditors and lawsuits. Many worries stem from concerns over rental properties and vacation homes (including toys such as jet skis) owned by our clients. It has been a few years since we touched on this so we thought it would be good to revisit the topic given that we are entering the prime season of vacationing!

There are several techniques that can help the owner of a vacation home relax whenever he rents out the house to vacationers. Often an important starting point is the use of a Limited Liability Company ("LLC"). Below, we highlight some major aspects.

Reduced Liability

This is a big one. Imagine someone is staying at your house for the week, comes in from the beach, slips and falls at your rental property and sues you for damages. If the property is owned by an LLC at the time of the accident, and you've taken other prudent steps including those regarding the maintenance and rental of the property, your risk can be limited to the amount of your investment in the LLC. This is a much better result than the case where the vacationer/tenant can reach your personal home, savings, investments, etc. In summary, liability claims can be significantly minimized with this structure, helping to protect your personal assets.

Additional Considerations

We also find that clients enjoy the mental separation of their business and personal assets. Setting up their rental property in an LLC allows them to treat it as a business and have a clear separation of expenses and revenues. To take this a step further, if you own multiple rental properties, each property can be 'insulated' from the other.