“How do I know if the contracts I bought from (insert guru’s name here) are legal in my state?”
The above question is one I get often and in my opinion it’s an extremely important one to answer. You see, there are many places you can skimp and be cheap in life and business. For example, if you’ve got a lot of free time in the beginning of your real estate career, go ahead and save money and paint a few bedrooms in one of your rental properties.
If you want to buy the cheapest bandit signs you can find, and they still work great, then go ahead and do that too. However, when it comes to your contracts I would be careful not to be lazy or cheap. But I’m still going to show you how to save some money.
The first thing you can do…
Is befriend a successful old-time investor at one of your REIA meetings and see if he’ll let you see his contracts. He may or may not be willing to do this, but you never know if you don’t ask. Or perhaps you could offer to pay him a small amount for them. (My contracts cost about $1,200 apiece, so they’re not cheap to get done by a lawyer from scratch.)
If you can’t get an investor at a REIA meeting to help you out, the next best thing to do is go to a Realtor. Get the Realtors contract for your state and go through that. Most contracts are the same in any state, however, you have to be careful for the few clauses that are specific to each state.
If for some reason you can’t find a Realtor or an investor to help you out, then go to your local office supply store, or go online and buy a generic contract for $20 or so. Then, take that contract to a lawyer and tell him to add in the necessary clauses for the state.
Before you do this though…
It is extremely important you negotiate a fixed fee for the lawyer. Do not pay on an hourly basis. And make sure the lawyer knows you just want him to add a clause or two and that he’s not to rewrite the entire thing and start from scratch.
You’ll probably have to tell them the above information twice — I’m not kidding. If you don’t, you’ll end up with a contract that looks nothing like the one you turned over to him and he’ll want $2,000 for his time.
Whatever you do, please don’t simply buy a generic contract and then not take it to someone to add in the state specific clauses you need. I’ve spent a small fortune on all types of contracts and I know it’s one of the best investments I’ve ever made, because if I ever have to take legal action based on them, I know they’re iron clad and will hold up in court.
So even if you’re short on funds right now and can’t go get contracts drafted from scratch by the best lawyer in your town, the above 3 ways can help you get a solid contract at an affordable price.
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.