Real estate is similar to other types of investments in that there are always potential pitfalls. Like stocks and bonds there will be fluctuations in value depending on economic conditions. Unlike most types of investments, the gravity of the risk can exceed the investment in the assest.
Suppose you hire a contractor to make repairs to a deck and that deck collapses while tenants and guests are having a barbeque. You could be liable to pay a judgement that exceeds the value of the property. A faulty carbon monoxide detector fails and tragically a family of four is killed by a release of gas indoors. You could now face not one, but four, wrongful death actions caused by negligence.
Of course you think that having insurance would protect you from things just like this, but there are always exceptions or carve-outs in your coverage. Many insurance policies will exclude coverage or limit the losses for certain dog breeds. Rottweilers, chows, and about a dozen other breeds are among the most common not covered by dog bites.
Theses gaps in coverage can leave investors on the hook for some very large payments. You’re best bet would to find a personal liability umbrella policy with $1 million to $2 million in coverage. But many investors also have a formed and running corporation or LLC. This can limit your damages as well as protect personal assets should you be sued.
Consideration with attorney would be the smartest way of deciding how to proceed. Depending on the area and particulars, the legal work can be done for just a couple hundred dollars. This seems like small price to pay for the protection you can ensure with the proper insurance and corporation set up.