As a real estate investor, it is essential to have a basic understanding of the law. After all, the law governs everything we do in life, including our investments. While you may be able to get away with ignorance of the law for a while, sooner or later you will run into trouble if you don’t know what you are doing. And when you run into legal trouble as a real estate investor, it can be very expensive.
In addition, as an investor, you can use the law to your advantage. There are many legal strategies that investors use to make money in real estate. But you can only take advantage of these strategies if you know what they are.
So whether you are just getting started in real estate investing or you have been doing it for a while, it is important to educate yourself on the legal aspects of investing. To help you out, we have put together a list of the most important legal tips every real estate investor should know.
Protect Yourself With Insurance
Investment properties are just like any other piece of property, in that they are susceptible to damage from fire, theft, accidents, and weather events. That is why it is important to have insurance on your investment property.
The type of insurance you will need will depend on the type of property you own. But in general, you should carry liability insurance in case someone is injured on your property, as well as property insurance to protect your investment in case of damage. If you are located in the US, real estate title insurance is also highly recommended if you are taking out a loan to finance your investment property. Therefore, working with a reputable real estate title company is critical. Not only will they ensure that the title to the property is clear, but they will also help to protect you from any potential title problems that may arise in the future.
Get Everything in Writing
This may seem like common sense, but you would be surprised how many investors make verbal agreements with sellers, buyers, contractors, and others involved in their deals. And when things go wrong (and they often do), those verbal agreements are worth about as much as the paper they are written on.
To protect yourself at all times, always get everything in writing. This includes contracts, options, leases, and any other type of agreement you make concerning your investment property. That way, if there is ever a dispute, you will have something to fall back on.
Know the Ins and Outs of Your Contracts
As a real estate investor, you will be entering into a lot of contracts. And while it is important to have a basic understanding of contracts in general, it is even more important to understand the specific contracts you are using in your business.
For example, if you are going to be using a lease option to buy a property, you need to know all of the details of that contract. What are the terms of the lease? How long does the option last? What are the conditions that must be met for the option to be exercised? These are just some of the questions you need to be able to answer before signing on the dotted line.
Hire a Qualified Attorney
When it comes to real estate investing, there are a lot of gray areas. And while you may be able to get by without an attorney for simple transactions, it is always best to have one on retainer for the more complicated deals. An experienced real estate attorney can provide valuable guidance and advice on a wide range of legal issues, including contracts, leases, zoning regulations, and tax laws. They can also represent you in court if necessary.
The best way to find a qualified real estate attorney is to ask other investors for referrals. You can also search online. Just make sure you take your time and find an attorney who you are comfortable working with and who has experience handling the type of transactions you are involved in. And while hiring an attorney may seem like an unnecessary expense at times, it is always better to be safe than sorry. After all, a good attorney can save you a lot of money in the long run.
Understand Zoning Laws and Restrictions
One mistake that a lot of investors make is buying a property without understanding the zoning laws and restrictions that apply to it. Zoning laws are set by municipalities and they dictate how a piece of land can be used. For example, a residential property can only be used for housing purposes. It cannot be used for commercial purposes such as a retail store or office space.
Investors often run into trouble when they buy a property that is zoned for one use but then try to use it for another. For example, an investor might buy a residential property to use it as a rental property. But if the municipality has zoned the property as a single-family dwelling, the investor will not be able to rent it out to multiple families. Also, if the municipality has strict zoning laws, the investor might not be able to make any changes or additions to the property, such as adding a deck or garage.
Pay Your Taxes
This may seem like another no-brainer, but you would be surprised how many investors try to avoid paying taxes on their investment properties. But the reality is, if you own an investment property, you are required to pay taxes on it just like any other piece of property.
The specific taxes you will have to pay will depend on the type of property you own and where it is located. But in general, you can expect to pay income tax on any rental income you earn from your property, as well as property taxes.
