I’m often asked this very important question. From an asset protection standpoint, the best thing to legally do is to transfer your rental property to a Limited Liability Company (LLC). The reason that this is important is that you should be thinking about what will happen if there is a lawsuit against the property. An example would be an injury from a defect on the property or a collapsed roof during an earthquake. It is important to maintain good liability coverage in addition to transferring the property to an LLC.

What many people don’t take into account is that most insurance policies have exclusions and that the policy limits will only take them so far. So, in order to shield your other assets from a potential lawsuit in the future, it is best to have the protection of both the liability insurance as well as the LLC.