REAL ESTATE: Closings & Investor Representation

REAL ESTATE INVESTMENT

REAL ESTATE INVESTMENT AFTER THE HOUSING CRISIS

Real estate in key destinations, like California and Florida is back like never . . . well . . . actually, it’s back exactly like before.  Let’s face it.  The real estate market is cyclical, and we’re now back on the upswing. That means opportunity.

Where’s the Inventory?

Home values have been sharply on the rise for several quarters, rental rates are strong, and banks are lending again, so the business models that worked prior to the crash are back: (i) the quick flip, (ii) rehab and flip, and (iii) rental portfolio.

When you invest in a home, you get an asset that is tangible, useful and enduring.

That is universally attractive.

Foreign investors are particularly keen since _

  • The dollar continues to be weak against foreign currencies
  • The US economy has rebounded and seems stable
  • Home values are still comparatively low
  • Foreign capital is in flight due to economic crisis and political upheaval

Conditions are perfect for international individuals and companies interested in diversifying their portfolios.

Foreign Investment in Real Property Tax Act

Whether you are local, out-of-state, or abroad, there are three basic considerations for successful real estate investment.

Principle #1: Real Estate Professionals

Even sophisticated investors cannot know all the intricacies of the various markets. If you are interested in acquiring property in a particular area, you will want to consider working with a professional who concentrates on that market. So, whom can you trust?

There is no question finding a good realtor is fundamental to successful investment. A good realtor knows how much a property is really worth and, more importantly, how much it will likely be worth in the future. A realtor also knows how much the property can generate in rent. There is no downplaying the role of realtors in real estate investment, but there are a couple of limitations.

First, realtors are not allowed to give legal advice. Questions regarding taxation and asset protection should be handled by a lawyer. HLA’s real estate attorneys are knowledgeable about the use of land trusts, limited liability companies, offshore and other techniques for protecting you and your investment.

Principal #2: Communication

Investing in real estate is always a big deal. Obviously, there is the initial monetary outlay. Some of the other financial implications may be less obvious, such as taxes, accounting, insurance and estate planning.

For investors who come from particular countries — such as China, Argentina, Venezuela, and North Korea – there may be legal concerns. It is important to understand the implications of the investment and clearly communicate goals to the assisting professionals. Of course, language is one important component. If possible, find local professionals who speak your native language. There is more to it than that, though.

Legal systems around the world–and even state to state–may be similar in some ways, but there are always differences. If you want to actually understand your investment, you will need someone who can translate legal concepts. Even if you have significant experience and knowledge investing elsewhere, that does not mean you will understand a real estate transaction in Florida without the assistance of an attorney specialized in this area of practice.

Principal #3: Compensation

As an investor, you will almost certainly be teaming up with at least one real estate professional. Here are some options.

There are professionals who receive a commission on the sale-purchase. Buyers usually love this arrangement because commission-based professionals, such as realtors, do not charge anything unless and until the transaction is finalized. No doubt realtors are very ethical. Just the same, if we are doing an objective analysis, it is worth noting commission-based professionals have an incentive to see the transaction occur whether or not the purchase is favorable for the investor. In fact, the more the investor pays for the property, the greater the commission.

You can also find companies and individuals willing to partner up. So, for example, the partner might find the good deals and take care of the realtor work, while you provide the capital. The downside to this arrangement is you will have to share profits. On the other hand, the advantage is both your interests align. The more money you make, the more money your partner makes. For the most part, this arrangement creates good incentives, though there is a chance the partner might be less risk-adverse than you would like.

Lastly, you can hire a fee-based professional, such as an attorney. Thinking in terms of how interests align, the attorney is essentially neutral. An attorney receives a fee whether the deal closes or not and whether the investment is successful or not. Perhaps that seems like a downside. However, consulting an attorney is the one way you can be sure you are getting unbiased advice from someone with a professional responsibility to consider only your best interests.

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