Jan 1, 2024

4 Legal Questions to Ask Before Investing in Real Estate

Jacob Blackett
4 Legal Questions to Ask Before Investing in Real Estate

The real estate industry is complicated, with plenty of different facets that require meticulous research. For one, you’ll need to know the different types of real estate properties and then pick which you’d like to invest in — a residential, a commercial property, or perhaps a vacation home. You’ll also need to learn the different market trends and how they might affect your investments. Lastly, there are the legalities to worry about. Admittedly, they’re not the most enjoyable aspect of investing in real estate, but they’re there for a reason. If you’re new to investing and are still trying to wrap your head around the legal aspect of real estate, here are four questions where you can start:

Am I aware of all the relevant laws?

Before you can even think about buying your first property, you need to research real estate law. These are rules and regulations involving land and any structures that are attached to it. For instance, there exist zoning laws that dictate where you’re allowed to build structures. There are also regulations surrounding the legal ownership of property, most notably in the use of deeds. These are just a few examples of legal regulations.

Also, take note that there are federal and state laws, meaning there exist local rules and regulations that are specific to a city, even a neighborhood. One district's building codes might limit the number of floors you can construct, which might not be applicable to another area — any commercial property investor should be aware of the variation. Having a thorough knowledge of the legal framework of the real estate industry can help you achieve success in your property investments and avoid legal complications in the future.

Do I need to establish a company?

Buying a property for personal use doesn’t require you to establish a company, but it helps protect your personal assets as a real estate investor. Forming a limited liability company gives you the advantage of separating the company’s assets from your personal assets. This means that any liabilities or lawsuits against your company won't have a direct effect on your own assets. Plus, this model is all the more useful for syndicators, as an LLC gives its members the freedom to structure the business — including the membership and compensation schemes. Also, if you have more than 10 properties under your belt, you could consider holding them under multiple LLCs. This minimizes potential liabilities should you encounter a lawsuit, as your other properties would be unaffected by it.

Will I be able to prepare contracts that can guard my investments?

When you buy a property and rent it out, it’s important to have a legally binding document that both you and your client have agreed to. This is where contracts come in. Different property types warrant different contracts. For instance, if you owned a residential property, it would be wise to get an indemnity agreement with your tenants. This type of contract removes all liability from you should your tenant harm themselves on your property. It also holds tenants accountable for any form of damage to the property. This not only safeguards your assets but also lays down expectations for you and your clients from the get-go.

Should I hire a real estate attorney?

The act of purchasing property involves plenty of legalities, and at times, these may become overwhelming to new investors. That’s why it’s important to ask yourself if you need assistance in handling them — and more often than not, the answer is a resounding yes. This is where a real estate attorney comes in. Their job is to prepare and review purchase agreements, title documents, transfer documents, and other legal papers. They’re also more than capable of offering legal advice should you require it. Most importantly, a real estate attorney can assist you with the questions mentioned above, so don’t hesitate to consult with one if you’re feeling overwhelmed. This can be especially helpful for syndicators who’re looking for an unbiased legal perspective.

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