Every serious real estate investor reaches a point where they start to worry about being sued and having all of their hard-earned investments taken away by an ambulance chasing attorney and scheming tenant.
The first step many take is creating a limited liability company (LLC), which are easy and cheap to create, and which once upon a time may have actually, you know, limited someone’s liability in a lawsuit. The theory went that you created an LLC, and owned a rental property or two under its name, so that if the worst happened and you were sued, only the LLC’s assets could be taken. So, your other LLCs’ assets were safe from the lawsuit, as were your personal assets (your house, your car, your engagement ring, etc). If you owned five rental properties, and each rental property was owned by a different LLC, then you had supposedly isolated each property’s liability so that the most a plaintiff could take was that rental property, not your other investments and certainly not your personal assets.