Overview of Potential Threats to Your Assets
How do you evaluate potential risks from real estate investing? Most people take a look at the economics of a real estate investment. They ask questions like "what's the price and what can I sell it for? What's the market like? How much $ would I have to spend to fix up a property? What about interest rates on any money I might have to borrow?" All the factors that go into deciding whether to make a real estate purchase for investment property. But, how do you analyze the legal risks that come from property ownership?
This short article gives an outline of potential areas of risk. Each one of these areas deserves to have an entire talk about it, but to make things short and clear, here are some categories of risk.
There are two types of legal investor risk: inside risks, and outside risks.
If you own a property, there's premises liability. That's simply things like landlord-tenant issues, slip and fall (personal injury) and property damage to your neighbors (example: water main breaks on your land and floods your neighbors). Some of this risk is insurable. Some isn't.
Insurable Risk: EX: Tenant falls on the front step and breaks her hip and sues you for negligence for failure to maintain the property.
Uninsurable Risk: Tenant creates a Meth lab in the property, there's a huge chemical fire with ether and it burns down the entire block.
OUTSIDE RISKS: Examples
Judgment – existing or pending against an owner, or partner of an owner.
Industry specific regulations
Considerations where there is more than 1 owner of the LLC
Death of a party
Diversion of interests
Profits and Losses
What if – due to injury, incapacity or change in life circumstances the Managing Member of Manager of the LLC lo longer is devoting their services and time adequately to the LLC? In case where one party is to invest capital and the other is investing time and expertise, then there needs to be some kind of protection for the capital contributing member that the Manager is actually going to do his job in return for his Membership interest and a method for firing him if he does not.
Dissolution circumstances? How will profits and losses divided? Disproportionate division spelled out in operating agreement.