Through nearly 30 years of business, Clint Coons has seen real estate investors employ a variety of strategies based on fallacies, misinterpretations, and just plain bad advice.
Here are three such misconceptions that Coons most frequently sees in his work:
Your insurance will protect you from lawsuits
While you should absolutely get insurance for all your properties, Coons said that insurance alone will not entirely protect your assets.
Insurance will not protect investors from most lawsuits regarding the buying and selling of real estate. In fact, insurance won’t protect your assets any time you enter into a new contract, sell some property, or lease a property to a tenant. Furthermore, all insurance policies have an array of exclusions that allow insurance companies to mitigate losses on claims.
“Most real estate investors don’t realize where most lawsuits are going to come from, and they don’t fall under your insurance policy,” Coons said.
Make sure that you read your insurance policies’ exclusions and buy the right plan, ensure that your contracts are drafted to protect your business, and that you have set up the proper business entity. Often, your business entity can protect assets better than your insurance policy.
Where you live
Many investors may be attracted to incorporate in Nevada, Delaware, or Wyoming because of their low or no state income taxes.
But when tax time comes, it doesn’t matter where the business is incorporated. The IRS cares about where the business owner operates it.
Those operating a business in Florida will still need to pay state taxes on income they’ve earned as a resident of the state — even if their business is incorporated in Delaware, Wyoming, or Nevada. Typically, it’s best for a small business owner or investor to incorporate in the state in which she lives.
Learn on the fly
Invest in your real estate education and take it seriously, Coons said. Not only can you limit potentially costly mistakes but you can significantly maximize your time and dividends if you take the time to learn and implement lessons from veterans in real estate investing
“Get educated — that’s the most important thing,” Coons said. “You’ve got to be educated from people who are actually doing what you want to do.”
Investors can learn from a plethora of free and inexpensive resources. Ranging from real estate investing for college students and structure advice to accelerated depreciation approaches and wholesaling strategies, the Anderson Business Advisors channel is but one of many examples of valuable free resources through which you can improve your investing chops.
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