When to Get a Lawyer Involved

11 Replies

What steps in the rental property investing process, aside from the writing of the lease agreement, should a lawyer be involved in? And should their specialty be real estate investing in general, or are there lawyers who specialize specifically in rental agreements? 

@Valerie King

If you're renting to tenants, you shouldn't have to get an attorney involved. Leases are very easy to find if you look around. Change it to your needs.

If you're buying and selling real estate, eviction someone, getting sued or needs asset protection help, consult an attorney. Preferably an experienced one specializing in real estate

Valerie, 

Great question. What I want to say (because I am an attorney) is that you should always involve an attorney... but... here's my two cents.  

First, you should NOT just grab a lease agreement from the interweb and hope it works for you. You should talk to other landlords, ideally someone that has been around for a while and see if they will pass their lease along.  Also, some nice property managers and associations such as the Department of Real Estate or Apartment Association may have a lease template or form that will be specific to your state laws and one they use for multiple tenants. These should come for free. If you have the advantage of reviewing several and choosing one that best suits you, great. If you can't get your hands on one, getting one from a real estate attorney for a few hundred dollars is well worth it, especially since you will be able to reuse it again and again. I even know of some RE attorneys that give out a lease form to new landlords. 

Once you decide to become a landlord, you should begin looking for and building a relationship with an attorney.  The reasons for this are many but an attorney can advise you about your risk of liability and what you can do to avoid being sued and what you can do to limit your exposure if you do.  I would say that once you become a landlord, it isn't a matter of "If" anymore but "when" you will be in a dispute with a vendor or tenant about the property and you'll be glad you have a good relationship with an attorney who knows your situation. 

He will likely recommend you transfer your rental properties into an LLC, and for good reason. Many people here on BP think that an insurance policy is all you need or that an LLC isn't necessary. This however is not true. There are many reasons you should use an LLC for rental properties, and have good insurance coverage.

While attorneys don't give tax advice, they should know enough about entities and your situation to help point you in the right direction regarding taxes and connect you with a good accountant who can make sure you take advantage of all legal tax strategies to reduce your tax obligation and pay only what is required.  This will save you thousands of dollars over the long term. 

It should not cost you to have a consult with an attorney to tell him about your situation and your goals and see what his recommendations are. Do not wait until you are already in a lawsuit to try and plan a way out. Take the proactive approach and do those things that will reduce your risk and probability of being sued to begin with. 

@Cody Backus  Thank you so much for taking the time to gove such a thorough and thoufghtful answer. It's great to hear from an attorney! 

I'm glad I asked this now, so I have plenty of time to find and build a relationship wth an attorney who specializes in this. 

About the LLC, I've heard from a number of investors that it's a smart move and from others that it just isn't necessary; you're the first actual legal specialist to bring this topic of. So, if I purchase a duplex with an FHA loan, it initially needs to be in my name and not an LLc's name, right? But it sounds like you're saying it's possible after a certain period of time to transfer it into an LLC and that the liability factor is the key reason?

Originally posted by @Valerie King :

What steps in the rental property investing process, aside from the writing of the lease agreement, should a lawyer be involved in? And should their specialty be real estate investing in general, or are there lawyers who specialize specifically in rental agreements? 

Almost every state has some type of standard lease agreement that most real estates agents use. In my state it's called the VRLA (Virginia residential lease agreement). With a little Googling I could find your state has a nice PDF that outlines a lot of laws, as well as a sample lease agreement starting on page 32: http://www.michigan.gov/documents/dleg/Tenants_and...

As for getting leases from others, it's the wild west. I've seen a lot of leases, and most wont stand up in court on a condition or two, or violates the law entirely. So as my attornies likes to say, some terms of the contract are unenforceable.


Poke around a find a lease that sounds decent, if you feel you need have an attorney take a look at it, do so, as that is the definitive answer.

@Levi T. Thanks for taking the time to search for that information. I'm thinking that might be a good start for a basic outline/sense of what can be included, but to tie a bow on it by consulting with an attorney and possibly making tweaks that meet my personal needs and desires as a landlord without breaking the law. 

More experienced investors can speak to this, but LLCs seem vary by state as far as what protections they provide and the difficulty and expense in setting one up. Seems like they more worthwhile in  landlord-friendly states and less valuable in tenant-friendly states.

I should think paying a real estate lawyer $800 to write up a lease for a property I intend to hold and rent for years would be cheap insurance, as would having them review it every couple of years. I know I'd sleep better at night, and that's worth gold to me.

Thank you @Darrin Brunner  I'm with you on doing things the right way and investing in that up front to avoid potentially losing a lot more or even everything down the line over trying to save a few hundred bucks. 

It is true that you can get reasonably good leases from the internet for free. Remember that many states have statutes and laws the require certain language in your lease. You should check your state's landlord tenant laws to find out if there are specific clauses that need to be included. My property management software has state compliant leases which I use. Cody was right about putting your property into legal entity that will protect your personal assets. If you have a LLC and someone sues you they cannot sue your personally. (I am not a lawyer but that is my understanding.) I have my rentals in an LLC for that reason. It is not hard to get registered as an LLC. You will need the lawyer to write the articles of formation for you however.

If you are buying or selling properties a good real estate lawyer can keep you out of trouble by reviewing any listing or purchase agreement that you are signing.  These agreements usually favor the agent and a few $ spent on a good attorney could save you thousands.

Finally, many investors use an attorney to get an eviction completed.  This can be very expensive so always ask the attorney to do it for a flat fee and be sure to include the cost of legal fees in the suit to evict.  It is also a good idea to be sure you are on firm ground with any eviction action as judges are often sympathetic to the tenant.  There are also eviction specialists in larger cities who can give good advice and support council for as little as $350. They will even represent you in court which is a good thing because owners can get emotional when presenting reasons for eviction.

That is my take on when I would use an attorney or equivalent (for evictions).

@Valerie King

You've got some great advice here regarding leases and doing things right. You will sleep better knowing your ship is sealed tight. 

In response to your first question about the LLC, yes. Investors take title in their name and then transfer title to an LLC sometime thereafter. You will be especially clear from the Due-on-Sale clause if you are a single member LLC.

Regarding your second question, I feel there are many more benefits from having an LLC than just the asset protection. While this is the primary reason for having one, there are many other reasons for doing so.

One that you will appreciate as a landlord is the ability to separate yourself as the owner of the property and act as simply the manager. Tenants treat managers differently than they treat owners and when you represent yourself as the manager, the tenants know you are bound to act with certain limitations placed upon you as a manager. If they know you are the owner however, they think you have the ability to reduce or forgive late fees, excuse them for the pet they were not allowed to have per the lease, etc. Having the LLC act as owner and you as its manager helps to create that separation. Then, you are just the manager/messenger that can enforce the lease and collect payment.

Definitely find a lawyer who specializes in Landlord Tenant law.   A great source for that would be to go to magistrate court while court is in session for dispossessory hearings.   You will find a half dozen or so attorney's working files for some of the big apartment communities in your area.   

To find a great lease, find the best most established property management firm in the area who is active in Narpm.   I bet you can buy a kit from them if you don't want their services.  

Good luck!

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