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Protecting You Personal Assets From Real Estate Investment Risks

April 14, 2012 | Comments: 0 | Views: 90

As an investor, you are also an individual who may have a home, a car, personal bank accounts, and other valuable assets you took a long time to accumulate. When you purchase a property, you often finance your investment with a loan. If you are unable to make payments on the loan you use to purchase the property. The bank or the lender will sell your property at the amount of money you own on it. There are risks which when the property prices are falling, the foreclosures might not clear your liability, the bank or the lender will have the rights to take possession of your other assets. You also want to protect your assets from any fraud of the whole investment process. There are three common methods to protect your personal assets from real estate investment risks:

Form a limited liability company. If you purchase a property on your own name, you become personally liable for anything happen in the property. If you are unable to make the loan payments, all your personal belongings is at risks. One of the most popular ways to solve this problem is to set up a limited liability company or LLC. By forming an LLC, you limit your risk exposure to the company. There are many benefits of an LLC: Less paperwork and easy to set up, greater protection and avoid the double-taxation bullet. When you have an LLC in place, make sure to perform all your transactions by the name of the LLC, instruct your real estate agents, bank officers and whoever will handle the paperwork to prepare by the name of the LLC.

Transfer personal assets via trusts. Another excellent way to protect your personal assets is to transfer your personal assets via trusts to place your personal assets under someone else's name. You can transfer your assets to your spouse, your children or other people you would like to transfer. By transferring your assets via trusts, you cannot only protect them from legal claims but also to reap some tax benefits. Before you make this move, you need to understand the drawbacks of using this method. By transferring the assets to other people, you lose some control over those assets. If you put assets under your children's name, it may also trigger gift taxes, and it may affect your children getting other financial aids such as college loans. Furthermore, if the person you are placing assets to has his own personal liability issue. Your assets will be at risks.

Consider real estate investment trusts (REITs). Real estate investment trusts enable small investors to pool their assets, own real estate as a group and share the investment returns. With limited capital, investors can diversify their real estate portfolios by owning shares of multiple properties. Investors can also buy into high-end real estate. Compare with real properties, REITs is a highly liquid asset class. That means it requires less time and transaction costs to transfer ownership. Instead of selling the property, you can simply transfer shares or sell shares in the secondary market.

Learn more about real estate investments, visit

Source: EzineArticles
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