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Learn the importance of both property and liability insurance as your first line of defense and delve into the questions of entity formation for asset protection. Navigate the complexities of tax preparation and strategy tailored to real estate investments, emphasizing the significance of expert tax and legal counsel. Elevate your understanding to ensure your properties are properly protected.

Welcome to the next lesson.
Legal And Accounting Issues.

It should be no secret to anybody that we in the States live in a very litigious society. In other words, people like to sue one another. And if you didn’t already know, all housing providers and rental property owners are filthily rich millionaires who spend most of their days living on yachts in Monaco.

I’m just kidding. We should hopefully all know that by now. It’s not the case. Your average rental property owners are folks just like you and me that have jobs, work hard, and invest in property to help themselves and their family get ahead and build wealth over time. But unfortunately, tenants and attorneys don’t necessarily see it that way.

So it’s important to know that if you’re involved in the real estate investing business long enough, there is a chance that you can be involved in a lawsuit at some point in time. Now don’t fret, this shouldn’t turn you off from investing because as mentioned in the prior lesson, good investors know how to protect their downside. There are numerous defenses we as real estate investors have at our disposal to protect us from both frivolous and legitimate lawsuits. I’m not going to get into the details in this lesson because we do a deep dive on it in a future one, but I want you to again, recognize the words when you see them or hear them in the future. The first line of defense we have is in the form of liability insurance. The nice thing is that every landlord insurance policy and this is different from your traditional homeowner’s or renter’s policy you have for your primary residence, but more on that later, comes standard with some amount of liability insurance. Again, we’re not going to get into the details here, but just keep this in the back of your mind. The second line of defense is forming an entity or a legal business structure that is designed specifically for asset protection. We’ll also get into these in future lessons, but for now, just know that there are numerous options available to protect yourself, your assets, and your family. The nice thing is that people have been investing in real estate for essentially as long as people have been on this planet. So we don’t have to reinvent the wheel when it comes to protecting ourselves. With regard to accounting, you should know that as a real estate investor, you are more likely to get audited because your taxes are likely going to get a little bit more complicated. Now, it’s not a big deal. It’s not something to fear. It’s simply something to be aware of. Thus, it is critical to have competent tax advisors to both assist in tax preparation, as well as tax strategy and planning sessions.

The same should be said for legal counsel. Paying for legal and tax advice should be something you get excited about, not something you dread. Try to think of it as an investment for the long term, rather than a cost or expense. If you need medical advice, you go to a professionally trained and educated doctor, and no one questions that. If we need tax or legal advice, how come so many of us turn to the internet or the DIY places? I would recommend everybody find a reasonably priced professional who knows what they’re doing, and pay them for their services. I can nearly guarantee you that they will save you more in costs than they are charging. So this took me a long time to wrap my head around because I always saw it as an expense, something I had to pay for, but I promise you in the long run, it is well worth it. And they have saved my behind more times than I care to count. So it’s definitely something worth investing in, but again, important to recognize the downside and risks of real estate investing. There are tax and legal consequences as we become real estate investors. So we just want to be aware of those.

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