Real estate investing is a complex world filled with plenty of opportunities but also numerous challenges. Today, we bring together experienced investors to discuss some of the significant legal hurdles they’ve faced and how they’ve navigated them. If you’re into wholesaling, fix-and-flip, or even virtual markets, these insights will be invaluable.
Before jumping into the meaty part, let’s introduce our panel of seasoned investors:
- Pace Morby from Sell Easy, based in Phoenix, Arizona, doing 10-12 deals a month.
- Evo from Higher Offer, also in Phoenix, specializing in wholesale deals, fix-and-flip, and data companies.
- Brian from Property Part, managing 6-12 deals a month.
- Jesse who recently merged with Higher Offer to expand their data and wholesale business.
Real Estate Challenges Beyond Five Deals a Month
After surpassing the initial milestone of five deals a month, new challenges start to emerge, particularly legal ones. Pace Morby and Jesse Burrell dive into the nitty-gritty of these issues, sharing real-world scenarios they’ve encountered.
One challenge that’s often overlooked is dealing with sellers unable to move due to financial constraints. Jesse shares an experience with a seller he had to creatively assist by releasing early earnest money to help them move into an apartment. They ensured they were protected by including specific terms in their contract, such as charging $50 per day if the seller overstayed. This highlights the necessity of detailed contracts to avoid unexpected twists.
When Sellers Cancel Contracts
Sellers canceling contracts is another common hurdle. Brian shares a situation where a seller canceled a contract because he couldn’t get tenants out of his properties. The team had to resort to legal threats to force the seller to comply, which eventually led to a settlement.
Conversely, Pace recounts a deal involving a seller who leveraged a real estate attorney to cancel their contract by offering the seller $5,000 more. This highlights the importance of having watertight contracts and the willingness to engage legal counsel when necessary.
The Importance of Detailed Contracts
For new investors, having a robust contract is crucial. The panel stresses the significance of including detailed terms to prevent vague interpretations that could lead to disputes. Jesse mentions an instance where vague additional terms led to disagreements about property conditions.
Pace adds that, when scaling a business, any changes to contract terms should be approved by an owner to avoid discrepancies. This policy helps maintain consistency and avoids potential pitfalls that could disrupt deals.
Recording Memorandums
The practice of recording memorandums on contracts is another essential tool in protecting deals. Evo emphasizes the importance of doing this promptly, ideally the day after signing a contract. This step can prevent other investors from swooping in and signing contracts with the same seller.
The panel also discusses the challenges of recording memorandums in different markets. In some states, the requirements can be so specific that even minor errors can delay the recording process.
Collaborating with Other Investors
When collaborating with other investors, the terms of the arrangement should be clear. The team highlights the pitfalls of splitting deals 50/50 with new investors who don’t contribute equally in terms of effort and risk. They suggest a more balanced approach, like offering a flat fee for bringing in a buyer rather than splitting the entire profit.
Conclusion
Navigating the legal complexities of real estate investing can be daunting, especially when scaling up to multiple deals a month. However, with insights from experienced investors like Pace Morby, Jesse Burrell, Evo, and Brian, it’s clear that thorough contracts, strategic use of legal tools, and effective collaboration can mitigate many challenges.
Their experiences underscore the importance of detailed and enforceable agreements, prompt recording of memorandums, and fair collaboration terms. By adhering to these principles, both novice and seasoned investors can better safeguard their deals and navigate the intricate landscape of real estate investing.
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