Dear Dave: I'm a new landlord, and I have a question. In the event of a lawsuit, what is the best way to protect my personal assets?
I'd go with a liability umbrella policy of about $2 million. This picks up where your liability leaves off on your car, homeowners and rental property fire and extended coverage policies. It's not very expensive, either.
If you start to build a substantial portfolio of investment real estate, such as houses, you might want to begin putting every four or five properties you buy into a separate corporate entity. I'd advise an LLC, which is a kind of cross between a sole-proprietorship and a corporation. Plus, it has some of the best characteristics of both business types.
Each LLC is a separate company with its own checking account. If you do all the paperwork properly, and an LLC entity owns a property where someone falls and sues you, then they can only sue for the assets of that company.