Buying a Second Home?

Here in Southwest Florida at Better Homes and Gardens Real Estate Pristine, we have an abundance of second home buyers. Often, the purpose behind the second home is to use it as an investment property.  As professionals in the real estate industry, our Associates are knowledgeable about the financial benefits as well as connecting buyers with experienced local resources to make the investment process easier. 

Recently, we recommended a buyer meet with an attorney about setting up a limited liability corporation before they purchase and make that purchase in the name of the LLC.   The buyer planned to lease the property.   The LLC is designed to limit their liabilities and protect personal assets against losses. Insurance is of course the first form of protection, so it is important to review your investment plans with your insurance representative, discussing any exceptions in coverage that exclude or limit the losses on the property insurance. 

Consider this example: After purchasing an investment property, the owner hires a contractor to renovate the deck, but the contractor overlooks an important repair.   After moving in, the tenant invites friends and family over for a barbecue.  During the gathering, the deck collapses and people are injured. The judgement against the landlord may easily exceed any equity the owners may have in the property as well as the coverage limits on their insurance policy.

A typical landlord insurance policy may not cover a dog bite. In fact, some insurance companies won’t cover bites by select breeds. One insurance company paid $121 million in dog bite claims in 2016 at an estimated $33,000 a claim. That may exceed the equity the owner has in the property and therefore make their personal assets vulnerable. 

The occurrences for these types of scenarios are rare, but should be taken into account when investing in real estate and using the home as a rental property. Locally rentals are in high demand and can usually give a good return on investment. Certainly, the right property can outperform other investment vehicles, but it just makes sense to make sure you have the right protection to separate liability from your personal assets.