Hey, everybody, Marissa, around here, Ken Macrocosm, legal adviser, and today
I wanted to talk to you guys
about the seven tips that I give my real estate investors.
Prior to executing a purchase and sale agreement,
tip number one is pay a little bit more attention to the law.
Why the letter of intent?
Now, as you all know, the yellow eye is similar to an M.O.
you a memorandum of understanding.
It's not really a legal agreement, but it's kind of like delete the meeting
of the minds, it's the two parties getting on the same page.
And so make sure that you're putting into the law why
all of the major terms that you plan to put on the contract?
A lot of times people leave things out from the alloy
and try and negotiate that at the contract level.
But by then, it's a little bit harder because if you don't put it in the law,
why the seller is going to be more apt
to push back on something if it wasn't in the yellow way.
Tip number two, Get extensions.
You'll be amazed how many times I see real estate investors get into a contract
and not have at least one extension in case they can't close on the property.
This is particularly important
if you're raising capital because there's a whole bunch of things that can happen
between the time you execute the contract and the time you can fund.
Maybe you're short on the res, maybe something came up.
You want to have as many extensions as you can possibly negotiate.
I would recommend at least two,
but you'll be surprised to see how many people don't put extensions whatsoever.
Now you may have to pay for the extensions.
You may have to go hard,
but you want to give yourself that out so that if for whatever reason,
you can't close on the closing date,
you've got that extra 30 days or even ideally 60 days.
Tip number three is once
you have an execute it away, get into contract as fast as possible.
You will be surprised how many times sellers
tend to shop around there otherwise.
So just because you have an Alawite sign doesn't guarantee that you're actually
going to end up with the property.
So the longer you wait between the time you get the hell away
and you execute on the contract, the more likely it is that that seller
may have a change of mind.
Somebody may come up with a better offer.
There's still a chance
that that person may cancel that Alawites somehow and end up selling the property
to somebody else.
Tip number four Use a real estate attorney.
This is particularly true if you're raising capital.
It always blows my mind
that people end up raising 1,000,000 or $2 million from investors
and don't spend the time or the money because the risk reward
ratio doesn't make sense.
Think about it.
Your reward is that you're saving 10,000 12,000
$8,000 on real estate fees, which, by the way, are paid from the project.
But your risk is that something gets missed something.
Some easement that was in the report doesn't get picked up.
Or is there some environmental issue or there's something happens
in the contract that prohibits you from doing
whatever it is that you wanted to do and you end up hurting your investors?
And even worse, you may potentially be liable to those investors.
So you're raising $1,000,000 or 1000000 and a half or $2 million.
That's your risk.
You could lose that $2 million if your investors end up
suing you for some reason, and your reward is simply $10,000 $12000.
So the risk reward ratio of not having a real estate
attorney really doesn't make sense.
Tip number five Make sure the contract is assignable
many times you enter into the contract in your personal name
or in the name of your LLC, which is fine,
but you want to make sure
you have language in there that allows you to assign the contract
to an other LLC so that you can close in the name of that LLC.
That's particularly important if you're again
raising capital, because when you have investors,
you're going to end up closing in a different LLC.
So make sure that language is in your contract.
Now, it doesn't have to be a blanket language
where you can transfer it to anyone.
You can limit it where you can transfer to, and I'll see that you control.
But you want to make sure that language is in there
so that you're not forced to close in your personal name or in the name of an LLC.
The ultimately, it didn't want to have tip number six.
Make sure that the seller is actually the one that owns the property.
You'll be surprised to learn that many times
the property might be owned in an LLC or in a trust,
and yet the contract is signed by an individual or some other entity.
So you want to make sure that you're entering
into the legal contract with the party that actually owns the property.
And finally, tip number seven, which is probably one of
my favorites, is try and set your due diligence date not from the calendar,
but actually an event.
So instead of starting due diligence on a particular day, make it contingent
on receiving, for example, all of your due diligence documents first.
Prior to that due diligence period starting
that'll typically buy you a couple of extra days
or sometimes a couple of extra weeks, because the seller usually drags
their feet in getting you whatever due diligence documents you need.
Now, it's really, really important here to make sure that you clearly define
when that date happens, when that event is triggered
and all of those documents are in.
We want to make sure we're very, very specific.
So again, it's super important to be working
with a really good real estate attorney so that language can be in there.
But if you can pull that off and not have your due diligence, start
until all those documents are in, that's going to buy you a couple extra days.
And I've even seen a couple of extra weeks.
So hopefully those tips were useful for you.
And if you've got any questions, as always, feel free to leave in the comments.