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The Key Laws All Real Estate Investors Need to Know!
Investing in individual properties takes a lot more work than opening a Fidelity account to trade stocks. Unlike the stock market, your real estate investment isn’t necessarily liquid, and converting property to dollars when you want to sell it can take months. Therefore, pay attention to these seven laws that all real estate investors need to know.
Consider Using an Entity to Invest
Set up an LLC that will purchase your property. If you want to get sophisticated you can do a Series LLC structure that will allow you to keep each purchased property separate and legally protected. In this scenario if you have seven properties for example, and someone slips and falls in one of them, they can’t attack the assets of the others.
Of course, if you are a new investor without stellar credit, it’s highly unlikely that any institution will lend you money without a personal guaranty, but an entity will still give you a better layer of protection.
Use the Proper Contracts
There is a lot of free legal information on the Internet and you’ll be able to find many purchase contract precedents and sample leases. Some of these might actually suffice, but unless you are an attorney, you won’t be able to tell the difference between junk and quality. Using an improperly drafted contract can cause you big trouble if a dispute arises, so get the proper legal advice before you consider using something that someone else has drafted.
Hire a CPA
CPAs have to take tests to get certified but anyone can call themselves an accountant. Therefore, spend the extra dollars to get qualified accounting representation by hiring a CPA. The wrong accounting advice can cost you a lot of money and if that poor advice causes IRS troubles, you only have yourself to blame if you hired an unqualified person in an attempt to save money.
Have a Goal
Sure, your goal is to make money but how and when? Do you plan to hold your property for five years while renting it, and then try to cash in?
Or, do you think you have the skills to buy a fixer-upper and then flip it? Regardless, get a plan and stick to the plan. Don’t just buy a property and hope that it will someday somehow increase in value.
Leave Room for Vacancies
If you have decided to become a landlord, don’t construct your P&L on the basis of 100 percent 12-month occupancy. Realize that when someone moves out, it’s tough to replace them without losing a month’s rent.
When doing projections, be sure to consider that vacancies may occur that can cost you a substantial income.
Did we even have to mention this? Search for bargains and make money when you buy. Don’t think that a market on fire will continue to over perform indefinitely. Sometimes it’s better to sit on the sidelines and pick your spots.
Believe Your Experts
You think you’ve found the perfect property at an amazing price. Perhaps you used a virtual real estate tour opportunity during COVID-19 to find your next spot.
You could fix it and flip it, rent it as is, and either way you’ll make money. Then the inspection report arrives, and it uncovers a load of possible issues. Resist the inclination to get a second opinion. Getting emotionally involved with a property before you know everything about it is a mistake.
There’s definitely money to be made in real estate investing. And tools like QR codes, virtual tours, virtual leasing and more to help you get the job done.
Just make sure you pay attention to the seven important guidelines above.
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