New York Real Estate

Owning a piece of real estate in New York City is no small feat. The market is intensely competitive, and price-per-square-foot for a piece of New York real estate is among the highest in the world. In fact, according to a study reported by CNBC, New York is the most expensive real estate market in the United States, and the sixth most expensive in the world behind wealthy destination locations like Monaco, Hong Kong, and Geneva.

So, now that you own property in New York City, you need to hold onto it until you are ready to part with it on your terms. This means protecting it against lawsuits and creditors. Implementing an asset protection strategy is crucial for any real estate investor, and the best (and, typically, least expensive) way to protect your assets is to deploy your strategy from day one.

Your New York Real Estate May Be at Risk If…

First, let’s look at the ways people commonly put their real estate investments at risk, which also happen to be the ways that most people hold their real estate, period. Your New York real estate may be at risk if…

1. You Own It in Your Own Name.

Most people who buy real estate, including even many experienced real estate investors, buy properties in their own name. When you buy real estate in your own name, this means:

  • Anyone can find out that you own the property simply by searching the public property records;
  • You are personally liable for the purchase loan and any other debts associated with the property;
  • If you get sued or incur debts unrelated to the property, your judgment and commercial creditors will likely be able to “attach” the property in order to satisfy your unpaid financial obligations; and,
  • If you get sued in relation to your real estate, the plaintiff will be able to go after your personal assets in addition to seeking to recover through your real property.

When you own real estate in your own name, for liability and debt purposes, your real estate is treated just like any other asset. If a plaintiff or creditor can take your cash, your cars, or your other assets, it can take your New York real estate (or at least an interest in your New York real estate) as well. With a secure asset protection plan, you can segregate your real estate from your other assets, limiting your personal exposure and safeguarding your accumulated wealth.

2. You Own It in the Name of an Operating Company.

Another common mistake people make is to put their real estate in the name of an operating company. This could be an existing entity, or it could be a new entity set up for purposes of acquiring the property which then takes on an expanded role over time. Many people hear that they should “put their property into an LLC,” and they do this without taking the additional measures necessary to establish an effective asset protection strategy.

Why is this a risky decision? Because it creates much the same exposure as owning a property in your own name. When you own real estate in the name of an operating company:

  • The company’s income and other assets are at risk if the company gets sued in relation to the real estate; and,
  • The real estate is at risk if the company gets sued or goes into debt in connection with its daily business activities and operations.

When it comes to asset protection, one of the key component of an effective strategy is segregation. You do not want your real estate to be at risk from your other activities, and you do not want your real estate investment to jeopardize your other assets.

Asset Protection Strategies for New York Real Estate

With this in mind, some of the most popular (and safest) asset protection strategies for New York real estate owners include the following:

1. Establish a Holding Company

One option is to establish a holding company. Limited liability companies (LLCs) are popular for their liability protection, limited formalities, and enhanced flexibility as compared to corporations and other entity structures. Another option is the special-purpose entity known as a real estate investment trust (REIT). The key, as we alluded to above, is that the entity holding your real estate should only hold your real estate, and not engage in unrelated business activities. Your holding company could be related to other entities as an affiliate or subsidiary, but its organizational documents should make clear that its sole purpose is to hold your real property.

2. Establish a Domestic Asset Protection Trust (DAPT)

Another option is to establish a domestic asset protection trust (DAPT). While it is not currently possible to establish a DAPT under New York law, you do not necessarily need to establish your trust in the same state where your property is located. DAPTs provide several unique benefits for those focused primarily on asset protection, and when seeking to insulate your New York real estate, establishing a DAPT is an option that you should keep on the table.

3. Establish Another Form of Irrevocable Trust

A third option is to establish a trust (in New York or elsewhere) that does not qualify as a DAPT. Non-DAPT irrevocable trusts can still provide strong asset protection benefits, and if you plan to hold your New York real estate long-term, an irrevocable trust may be a good option.

Whether you establish an LLC, trust, or other structure to hold your real estate, if it is not already too late, you should establish it before you make your acquisition. Things can – and do – go wrong from day one, and you do not want to be in a position where your assets are at risk solely because you did not put in the time and effort to protect them before you made your investment. Of course, there are additional costs involved in transferring ownership of real estate as well, and there is really no reason not to develop and implement an asset protection strategy before you buy.

Don’t Forget About Insurance

Regardless of the method you choose to protect your New York real estate and other assets, you will want to consider (and most likely buy) comprehensive insurance coverage. In comparison to the protection insurance affords, the policy premiums will almost invariably be a smart investment. Depending upon how you intend to use the property (if at all) and your other investments or business operations, there are a number of different coverage options that you can consider to help further secure your assets in the event of an unexpected liability.

Questions About Asset Protection for Real Estate Investments? Contact Jiah Kim & Associates

Jiah Kim & Associates is a law firm that focuses on helping its clients mitigate their risk while providing straightforward advice and transparent fee choices. If you own real estate in New York or are contemplating an acquisition, we can help you develop and implement an asset protection strategy that limits your exposure in the event of a lawsuit or credit default. For more information, please give us a call at (646) 389-5065 or schedule an appointment online today.

This blog post is written for educational and general information purposes only, and does not constitute specific legal advice. You understand that there is no attorney-client relationship between you and the blog publisher. This blog should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

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Jiah Kim & Associates

1562 First Ave #205-2004

New York, NY 10028