Why this matters (especially if you have equity)
I recently consulted with an investor buying a property that looked “perfect” on paper: strong cash flow, solid future upside, and a good mortgage. The real question wasn’t the deal—it was the structure.
- Do we include a spouse or kids?
- Do we use a trust?
- Do we form an LLC in-state or out-of-state?
- Do we combine entities, agreements, and bank accounts?
As we went deeper, I noticed a common assumption: once the property goes into an LLC, the owner believes they’re completely protected. That’s where many investors get surprised.
What are you really trying to protect?
Investors often focus only on “equity,” but early on there may be very little equity—just a down payment and a plan. In many situations, the immediate target to protect is the property’s cash flow.
- Cash flow: the income the property produces over time
- Equity: the ownership value after debt, which often builds gradually
Two concepts every real estate owner should know
1) Strict liability
Strict liability can be imposed regardless of negligence. In plain English: you can become legally responsible even if you did not “cause” harm in the way most people think about fault.
2) Non-delegable duties
Some landlord responsibilities can be delegated. Others cannot—especially safety-related duties in many contexts. That means you may still be responsible even if a third party is “in charge.”
Bottom line
Don’t “buy a structure.” Build a defensible system that matches what you’re trying to protect: cash flow, equity, and the tax benefits you’ve worked to create.
Disclaimer
This article is for general educational and informational purposes only and does not constitute legal, tax, or financial advice. Laws and outcomes vary by jurisdiction and facts. Consult a qualified attorney and/or licensed tax professionals before acting.