Legal Considerations When Investing in Real Estate

gclatworthy
April 23, 2013

[U.S Law and General] Since the housing market crash in 2007, the real estate market has been perfect for investors. Home and property values are extremely low, in some areas down to half their peak value, and interest rates are below four percent. It is a buyer’s market, and it is expected to remain that way for several years.

This seems like the perfect opportunity for any investor or potential investor to enter into the market, right? The answer to that statement is Yes, and No. Yes, financially it is perfect timing to invest in real estate. No, it’s not a good time if you are not aware of the four most common dangers associated with real estate investing.

Four Things You Must Understand About Real Estate Investing

1. Never invest in your own name. You must start a company, preferably an LLC (a Limited Liability Corporation) to protect yourself and your personal assets. If an event occurs on your property that causes you to get sued, you want the company to take on the burden of liability. As an added protection, make sure that you have a partner in your business structure, even if it is your spouse. Make sure they are legally named as a partner. When you are involved in a partnership and are sued, it is much harder to take away the assets of the company or the individual because “ownership” must be determined between partners.

2. Always have a lease that was professionally created. Hire an attorney, preferably before you begin looking at homes for sale, to create a lease for your property that conforms to local and state laws and will be in the best interest of your company. While you want your lease to be fair to your tenants, you also do not want it filled with loopholes that can cause your investment company financial harm.

3. Disclosure notices. You want to make sure that you supply your tenants with all relevant disclosure notices concerning the property. This may include inspections for lead-based paints in older structures, mold inspections, and other health related issues. The last thing that you want is to be sued for “sick building” syndrome or lead poisoning. Check with your attorney to see if there are any other local requirements that you should have inspected in your building and disclosed to your tenants.

4. Tenant screening. The most important thing you must do when you own real estate is have a screening process in place for your tenants. Bad tenants can destroy your property and cause you great financial harm, which is why screening is so important. Unless you are experienced in this type of process, you will want to consider hiring a property management company. These companies can do everything from tenant screenings to complete management duties.

Real estate is always a good investment, especially when the market is in the buyers favor. However, it is very important that you take all legal considerations into account before you decide to start investing in real estate.

Author Georgina Clatworthy is a homeowner and takes an avid interest in real estate markets and trends. She is also a former law blog editor and has written many articles on the legal aspects of real estate investment. When considering homes for sale, either for your main residence or for rental purposes, it is important to consider all legal implications both at the time of purchase and for the future.