Five Ways to Reduce Your Risk as a Real Estate Investor
September 23, 2011 
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It’s Tax & Legal Issues Month on The Investor Insights. However, I’m not an attorney and I don’t count beans. So, I’m providing some general advice that you need to clarify and verify with your attorney and CPA.
In this article, we’re going to discuss five ways to reduce your risk as a real estate investor. Let’s get started.
1. Get a good pair of reading glasses for contracts. As Aerosmith said in the theme song to Armageddon, you wouldn’t wanna miss a thing. The best advice I can give you here is to examine and read your contracts (both those you or your attorney draft and those you go into with a partner, tenant, spouse, lender, etc.) before you sign them.
2. Be very clear in your intentions with independent contractors. The IRS doesn’t look at the number of hours they work nearly as much as they look at the way you control their time and work environment. Be sure they always have a contract in place and that you review the IRS guidelines for what constitutes an independent contractor here.
3. Get yourself an education in the Fair Housing Act. You need to be familiar with these regulations on both the federal and state basis. Basically, this act prohibits the discrimination of housing based on race or color, national origin, religion, sex, familial status (families with children) and/or disabilities. Learn more about the Fair Housing Act here.
4. Go corporate to protect your assets (and realize tax benefits). It’s not a good idea to run an investment business as a sole proprietorship for a number of tax and legal reasons. The main reason to limit your liability under a Limited Liability Corporation is to protect your personal assets in the case of suit or bankruptcy. Learn how to go corporate with your Secretary of State’s office. It’s an inexpensive protection in the case you get sued. Plus, some types of corporations have tax benefits. Learn more about forming a corporation here and here.
5. Don’t give personal guarantees. This will get you sued faster than you can say “So, sue me.” And you can lose a ton of money. As this excellent article from INC.com says, a personal guarantee on a loan “will likely put your venture or business proposal under a microscope.”
Stay tuned to The Investor Insights blog this month for more tips on how to stay on the right side of the law and to avoid paying unnecessary taxes.
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[...] You need a corporation. If you try to become a wholesaler as a sole proprietor, you’re asking for trouble and if you’ve ever read this blog, you’ll know I think running any business as a sole proprietor is a really bad idea. Here’s an article about why this is so important. [...]