Investing in real estate still gives you the opportunity to hold assets securely and to create a legacy for your family. However, before you commit to a particular project or investment, you must understand that information is your most valuable resource.
With that point in mind, the prudent investor investigates each choice carefully before proceeding. It doesn’t matter if you are buying investment properties, lending to developers or investing in REITs that manage entire portfolios; the most valuable resource in your toolset is the advice of your real estate attorney.
Due Diligence And Investment
It is the buyer’s responsibility to investigate an opportunity to find any hidden traps in the contract or red flags that you can reasonably avoid. This due diligence works hand-in-hand with the legal principle of caveat emptor or “let the buyer beware.” Due diligence is showing that you have taken all reasonable precautions to ensure that your investment choices are safe ones. So, where do the services of a real estate attorney fit into this process? Letters of intent, contract drafting and document review are full of terms and condition that a professional will be able to spot and verify. If there are any red flags your lawyer will alert you so that you can renegotiate or walk away.
Direct Investment And Development
Let’s take a look at some of the vehicles for real estate investment and see where real estate lawyers fit in. Buying land and buildings and developing it for occupation may be a physical process but there is still an air of paper chase about any transaction, before, during and after the project has been completed.
Financing for viable investments is not difficult to find, and funding organizations such as banks are masters of due diligence. However, as a borrower, you still need to be careful that lending terms are fair and equitable and review all third-party contributions, whether they are loans, shares of your equity or any combination of the two.
Whether you purchase with cash, borrowing or with equity partners, done wisely and based on sound advice, cash purchases are stable investments that can weather short-term losses without incurring questions or margin calls.
Extending Legal Structures With Syndicates
If you can gather a group of investors together as a partnership, to support your development proposal, there is an entire legal framework to which you must conform. In organizing such a syndicate, you will be taking an active role that implies responsibilities and accountability. Talk to your attorney, to learn which legal structure might be right for your proposed investment partnership.
Passive Investing With Confidence
Rather than investing in land and buildings directly you can choose the alternative of funds and agencies that specialize in developing and holding income-producing real estate. Become a limited partner in a syndicate or buy shares in a REIT. Also, recent statutory changes mean that you can even invest through crowdfunding platforms.
Real Estate Investment Trusts
A real estate investment trust (REIT) is just a tax status. As long as they meet the prescribed criteria, REITs can be large syndicates, private equity funds or public stock market-listed shares. The advantage to investors is that REITs are taxed lightly, as long as they invest in income-producing real estate, and they distribute a high proportion of profits as dividends. Some produce exceptionally high income, but it tends to be in return for proportionally high risk.
Like all investments, if you are considering putting a substantial fraction of your wealth into a REIT, you should be careful to analyze the activities and assets contained within. Discuss what you find with your attorney or financial advisor and determine the underlying strength. You may find a stable portfolio of equity or mortgage paper, or the last bastion of toxic subprime lending. REITs are assets worthy of considering, but they do require careful attention before you make the final decision to invest.
Extending Opportunities On Crowdfunding Platforms
Crowdfunding is another source of finance and also a more accessible investment avenue than private equity. The legislation that defines this new mode of finance allows you to test the waters with fewer assets than required for an accredited investor. There are many combinations of legal structures and investment vehicles to grow your wealth using real estate. The most important point to ponder is always determining whether you are making sound investment choices.