Protect Your Rental Investments from Lawsuits

Some landlords, especially those with a small number of rentals, can have trouble navigating the legal and business components of landlording.

One mistake small landlords usually make is not properly shielding their personal assets when entering the business of being a landlord.

Below are the two most common types of business structures landlords often mistakenly choose and their drawbacks:

• Doing business as a sole proprietor is the most common structure used by small landlords because it is the easiest option. This setup offers no asset protection. If your business is sued, all or a portion of your personal assets can be seized. Additionally, sole proprietorship offers few tax benefits.



• Doing business as a general partnership can leave your personal assets even more at risk than sole proprietorship. Entering into a partnership leaves your assets doubly vulnerable if you or your partner files bankruptcy, incurs a debt or is sued. You can be held personally liable and your assets can be seized to pay off debts.

Structuring your business as a sole proprietorship or general partnership may seem like the simplest way to go; however, choosing either option may be a costly mistake.

Instead, consider setting up a corporation or limited liability entity to shield your personal assets. In most states, creating a corporation can be done for less than $700—a small price to pay to protect your personal assets.