LLCs Won’t Save You: How Real Estate Investors Actually Avoid Lawsuits
/Most real estate investors believe that stacking LLCs is the key to protecting themselves from lawsuits. While entity structure does matter, it’s often misunderstood—and it’s rarely the first or most important line of defense. In reality, investors are far more likely to get sued because of preventable operational mistakes than because their LLC structure wasn’t complex enough.
In my recent video, I break down why LLCs are not your primary shield and what investors should focus on instead to reduce risk and protect their assets.
Why LLCs Aren’t Your First Line of Defense
LLCs are designed to separate personal and business assets, but they do not prevent lawsuits from happening. If a tenant, guest, or contractor gets hurt on your property, you can still be sued. Poor maintenance, lack of insurance, and sloppy operations can pierce even the most elaborate entity structure.
Layering LLCs can be part of a long-term asset protection strategy—but only after you’ve handled the basics.
#5 When I Got Sued: Why Insurance Matters Most
I share a personal story in the video about being sued as a property owner. What ultimately mattered wasn’t how many entities I had—it was insurance. Strong, properly structured insurance coverage is often the difference between a stressful situation and a financially devastating one.
If you own rental property, insurance is not optional. It is the foundation of your protection strategy.
#1 Certificates of Compliance: Proving Your Property Is Safe
One of the most overlooked ways investors protect themselves is by making sure their properties meet local safety and habitability standards. In cities like Detroit, a Certificate of Compliance shows that the property has passed required inspections and meets basic safety requirements.
This documentation matters. If something goes wrong, it helps demonstrate that you acted responsibly as an owner.
#2 Preventive Maintenance: Fix Hazards Before They Become Lawsuits
Deferred maintenance is one of the biggest sources of liability for landlords. If something on your property could reasonably cause an injury, it needs to be addressed—promptly.
In the video, I tell a story about catching a serious structural issue just in time: a bathtub that was on the verge of falling through the floor. That kind of problem isn’t just expensive—it’s dangerous. Fixing issues early protects both your tenants and your financial future.
#3 Require Renter’s Insurance
Many landlords skip this step, but requiring tenants to carry renter’s insurance is a simple and effective way to reduce risk. Renter’s insurance covers a tenant’s personal property and can provide liability coverage for incidents they cause.
I share an example of a kitchen fire where renter’s insurance could have covered damages. Without it, landlords often end up dealing with claims that could have been avoided entirely.
#4 Equity Stripping: Reducing What a Lawsuit Can Reach
For investors with significant equity, another strategy is equity stripping—using mortgages, HELOCs, promissory notes, or even cross-collateralized loans between entities to reduce exposed equity. This doesn’t prevent lawsuits, but it can make properties far less attractive targets.
Like LLC layering, this is an advanced strategy that only works when the fundamentals—insurance, maintenance, compliance—are already in place.
The Real Takeaway for Investors
Real asset protection starts long before a lawyer ever gets involved. Smart investors focus on:
Proper insurance coverage
Safe, well-maintained properties
Clear documentation and compliance
Reasonable risk-shifting tools like renter’s insurance
LLCs are a tool—but they’re not a magic shield. The best way to protect your money is to run your rentals like a responsible business and eliminate problems before they turn into lawsuits.