Every real estate investor should have a team of trusted professionals that advise them on real estate investments. It is best to have an attorney and a tax professional on your team. As well, you should have a real estate broker and a real estate finance expert on your team of advisors.
Why should you seek legal assistance as part of your due diligence when considering an investment opportunity? For starters, it might be a lot less expensive than seeking legal assistance after something goes wrong. To be perfectly honest, I would really prefer not to hear a client tell me “I wish I’d talked to you sooner.” Actually, there are several ways an attorney can be a valuable member of your real estate investment team. Here are a few points to consider when making the decision how to maximize the return on your legal dollar.
For starters, you need to focus on your goals. Most successful real estate investors have a clear focus on their financial objectives. If you have a plan and are focused on clearly defined and realistic objectives, you’ll be able to communicate these objectives to your investment team. By staying focused, you can avoid distractions and concentrate on your goals. How can you expect your advisors to help you get where you’re going if you don’t know where you want to end up?
The next step is to make sure you consult with an attorney familiar with real estate issues. Not all attorneys are equally knowledgeable in all areas of the law. You wouldn’t hire a plumber to do your electrical work, or consult with a foot doctor for a head injury. For the same reason, a brilliant patent lawyer may not be the best choice for evaluating a real estate investment opportunity. If you are not sure — ask. It will save both you and the attorney time — and money.
Next, heed the age-old maxim: “You get what you pay for.” Don’t start the conversation “Do you give free advice?” The right attorney is going to provide you with valuable advice that will be worth the cost. The attorney – client relationship is not only privileged, and over a period of time your attorney can become a very valuable and trusted member of your investment team. Work on developing a long-term professional relationship with your attorney, and you will realize a good return on your investment.
Spend wisely. Let the attorney know your budget. Most attorneys will work with you, so long as you have realistic expectations and take a reasonable approach. At the same time, recognize that the true measure of value of professional advice is avoiding the loss of your investment. If you are investing $50,000 in a project that promises to yield a 10% return, you need to measure your legal costs against the risk of losing the entire $50,000, not as a percentage of your profit. Remember, you will hopefully be able to apply good legal advice over and over — thus maximizing your return on your legal investment.
Avoid litigation. One of the reasons to do your due diligence is to avoid situations that will result in litigation. Unfortunately, there are many: poorly drafted investment contracts; easement disputes; zoning violations; and overzealous promises, to name a few. No one benefits from litigation except trial attorneys. Aside from the costs, there are the inevitable delays, fractured relationships, and lost opportunities. Again: Avoid litigation.
Follow the advice. You paid for it — so use it! Of course, it’s your choice. But you should at least give the legal advice some consideration before you take action. Many times, an attorney cannot unequivocally state that a particular real estate investment complies 100% with all applicable state and federal laws, tax codes, SEC regulations, etc. Each investor should recognize that there is no such thing as 100% certainty, and adjust their risk tolerance accordingly.
Ultimately, the decision whether to proceed with an investment is up to the individual investor. Seeking advice from financial planners, tax advisors, real estate professionals and attorneys, as well as from experienced investors, is all part your due diligence. Getting legal advice before you invest is often a smart investment strategy.