Introduction

The market is soft, so you might be thinking now's the right time to buy a rental property and hold it. And you'd be right, it IS a good time to buy and hold, but there are a few things you should know before writing any big checks and diving in headfirst. Here are few ways to protect yourself from litigation and other legal issues related to real estate and being a landlord.

Legal Protection Strategy 1: Real Estate Ownership Type

All too many smart people make an easy mistake when they first start buying real estate as an investment: they buy it in their own name. This has some serious legal implications, as it will immediately show up as an asset if someone decides to sue you. Furthermore, if the tenant of that property sues you, they can legally go after all of your OTHER assets, which is clearly a problem.

Solution: Create a legal entity (e.g. an LLC) to purchase property under, and make sure someone else (like a spouse) owns it with you. This will make it harder, though not impossible, for someone to take your hard-earned assets from you in litigation. As a final note, restrict how many properties each of your LLCs owns, as anything owned by that LLC is vulnerable if the LLC is sued.

Legal Protection Strategy 2: Use An Airtight Lease Agreement

If anything goes wrong with the tenant or property, EVER, then the first piece of paper produced in court is the lease agreement. What makes a good lease agreement? Well, that's the subject of an entire article in itself, but first and foremost it must conform with state and local laws. Try here for a good database of state-specific lease agreements, that can be customized to contain the legal language you want to include.

Legal Protection Strategy 3: Issue Proper Real Estate Legal Disclosures to Your Tenants

This cannot be understated: if you don't issue to your tenants the legally required real estate disclosures, THEY CAN SUCCESSFULLY SUE YOU LATER. The most common example is lead-based paint disclosures, which legally must be given to tenants (typically along with a lead-based paint inspection certificate) when they sign the lease agreement. However, each state has different laws regarding what must be disclosed and when, so use the State Assist in the site above to check local real estate and landlord laws, and if need be contact a local real estate attorney, specializing in landlord - tenant law.

Here are some landlord - tenant legal disclosures, that may be useful in your state.

Legal Protection Strategy 4: Screening Tenants and Good Property Management

How to Screen Tenants is an art that needs more attention than I'll give it here, but read the linked tutorial, as this is one of the best way to prevent a legal suit.

Property management is also a nuanced and tricky beast, but to be brief, an attentive landlord who responds to his tenants when they call will be drastically less likely to be sued. When your tenants call about a problem, call them back. When there's a problem with your real estate investment property, fix it. Establish a personal, first-name relationship with your tenant. They'll appreciate it, and be less likely to sue you for your legal assets if there's a problem.

Conclusion

No one likes to be sued, so do everything you can to avoid it by finding good tenants and keeping them happy. And, of course, prepare for the worst by being protected in your legal ownership of your real estate investment property. Good luck, and hopefully, you'll never experience the nightmare of a real estate landlord lawsuit.