Owning rental property has many benefits.
It can provide a cash flow stream to help supplement your retirement, help pay for vacations, help with repairs to your own home, help pay for kids’ education, and many other things that having some extra money in your mailbox each month would help with.
There is also some inherent risk to owning rental properties.
You as the property owner could be liable for a host of issues, some of which weren’t ever caused or even known to you. Tenants get hurt on your property, or even tenants’ visitors getting hurt, can be a liability to you. Tenants getting mistreated or hurt by your vendors, could come back to you, the property owner. Of course, having the proper insurance policy could help mitigate some of these risks, but in the event of a lawsuit, you the property owner would be named and could be held liable for any negligence or damages a tenant or visitor may encumber. It’s always best to consult with your lawyer and insurance agents to ensure you have the proper policies and procedures in place to protect yourself.
One of the best protections for owning rental properties, is how you hold title to the property.
If you the owner hold title to the property as your name, John Doe, you are a very easy target for any lawyer to find and serve a lawsuit. If you hold title in an LLC, you may be slightly more protected personally, but everything the LLC owns is at risk and your personal information is still very easy to find and open to the public. The absolute best way to hold title on a rental property for your protection in Florida, is using a Land Trust.
In Florida, we have some of the best Land Trust statutes on the books.
This will keep the true property owner private, unless there’s a court order to disclose the beneficiary of the trust which is rare in Florida. Florida is very landlord friendly. Each Land Trust should only hold 1 property and you or your LLC can be the beneficiary of the trust. Having multiple Land Trusts is much better than having multiple LLC’s as the Land Trusts do not pay taxes, they are a pass-through entity to the beneficiary. Your CPA would love to have multiple LLC’s to prepare multiple tax returns, but multiple Land Trusts with the same LLC as beneficiary to all Land Trusts does not increase the tax preparation for the owner.
Anyone can set up a Land Trust in Florida and be named trustee or a beneficiary.
However, it’s best to use a 3rd party trust company (there are many) who know all the rules and laws to a FL Land Trust. Your Aunt Sally may do it for free, but if she was ever served a lawsuit, would she know what rights and obligations she has as trustee or would she just turn your name and number over to the lawyer which defeats the purpose of using a Land Trust to keep the ownership private.
We live in a very litigious world these days. Lawyers will take cases if they see you own a lot of properties. However, if they only see a trustee/trust, they may only take it with a large retainer which should help weed out the people trying to sue for a quick buck on a minor issue. A Land Trust does not excuse an owner for mistreating tenants, not fixing up the property to a livable condition, or skirting around issues that are illegal. If you intentionally do something illegal or abusive as a landlord, there is nothing that provides you 100% protection. Even Land Trusts can be pierced to disclose the beneficiary if the judge feels the issue is severe enough. However, for the frivolous lawsuits, they do a great job at deterring those people from even filing the suit to begin with. If you want to own rental properties, you should highly consider consulting with your legal and tax professionals to see if the use of Land Trusts can be a great tool for your privacy and protection.