Should Rhode Island Real Estate Investors Purchase Property in the Name of an LLC?

The idea behind owning and maintaining Rhode Island rental properties is to make a profit. Indeed, managing a rental portfolio is a good way to earn passive income. Like any business, one of the primary challenges as a landlord is to ensure that a property is generating a positive cash flow. Everyday expenses such as maintenance, taxes and registration requirements can quickly eat away at rental income. Landlords may also be liable for any injuries that occur on their property. If landlords are not property protected, their personal assets can be put in jeopardy. Thus, taking steps to manage the risks associated with rental properties is a crucial step that Rhode Island landlords should consider.

Whenever someone is injured on another’s property, the injured party may pursue a Rhode Island premises liability claim against the landlord. Figuring out who is liable in a slip and fall accident involving a landlord/tenant relationship is not always straightforward. For example, courts will look to how the injury occurred, who is in charge of maintaining the premise, and whether the landlord had any knowledge of the hazard that caused the tenant’s injuries.

The first person a tenant will look to after being injured at a rented home or apartment is likely the landlord. Rhode Island landlords have a few options when it comes to dealing with these risks. Two of the most common ways to deal with these risks are forming a Limited Liability Company (LLC) or purchasing an umbrella insurance policy.

An LLC is a type of business, or corporate structure, in which owners are not liable for the debts or liabilities of the business. In this way, an LLC resembles a corporation; however, income earned by an LLC passes through the entity to the owners, which is similar to how a partnership or sole proprietorship works. If a property is held in title by an LLC, then most often, any claims related to the home would be filed against the LLC, and the injured party would not be able to pursue the landlord as an individual.

Another option for Rhode Island landlords is to purchase an umbrella insurance policy. An umbrella policy is a separate insurance policy that provides additional coverage across all included policies. For example, a landlord may have a landlord’s insurance policy for each property that may provide $200,000 in coverage for each home and then an umbrella policy that provides an additional $1 million in coverage.

There is no right or wrong answer when it comes to how to guard against personal liability. Each investor’s situation is unique, and each option has its benefits and drawbacks. To learn more about the ways to manage the risks involved with rental properties, contact a dedicated Rhode Island real estate attorney.

Do You Have Questions?

If you own one or more Rhode Island rental properties, and are concerned about how to guard against risks, or have any other questions, contact Bilodeau Capalbo for assistance. Our Rhode Island property law attorneys are knowledgeable in all types of real estate law and regularly help landlords navigate the important legal decisions they must make. To learn more, call 401-300-4055 to schedule a free consultation today.