Hey Bigger Pockets,
Thanks for checking out today’s episode! We’re going to discuss “How to Avoid High Legal Fees as a Real Estate Investor”. Let me start by saying that I’m not bashing my attorney friends out there. When it comes to putting together big deals in real estate they’re absolutely necessary. What I am going to discuss today is the lesson that I learned on this last deal where I was hit with huge unexpected legal fees.
So let’s get started. What does your lawyer actually do and what do you need them for? Before I dive into this it’s important to keep in my that if you’re doing a deal(s) that’s over $500,000 the banks will make you pay them to hire a lawyer to draw up documents and represent their interest on the deal. I have yet to see anyone be able to get around this. This is what’s called a “Bank Appointed Attorney”.
What does your lawyer do?
– Review Contracts.
Make sure that they’re not spending to much time on this. If you can try to use a “Standard Contract” in this situation to minimize the time spent reviewing the contract.
– Zoning, Survey’s and Local Representation.
It’s important to have them apart of this process. Also some states will require that you have a local legal representation, which is a good thing. This way you make sure you’re in compliance with local laws and having someone who’s local can help when you need to reach out and get in contact with certain individuals needed for your project.
– Title Review.
This is something that your lawyer can do but for the most part all they can really offer is their opinion. When it comes to this step you can have them briefly review it, but you’re better off having the title agent take care of this step.
– Reviewing Loan Documents.
Loan documents can be 400-500 pages long and yes, your attorney will go through every page and line. Avoid letting them spend too much time on this because for the most part these documents are “boiler plate” style contracts and not too much will get changed.
So what can you do to keep these legal fees in check?
– Figure out their hourly rate.
Before getting involved make sure that they disclose their hourly rate. Also see if they would be willing to negotiate. They might not like this, but everything is negotiable.
– Try to lock them into a “Fixed Rate” instead of an “Hourly Rate”.
They also might not want to do this, but this will help to avoid being hit with a huge bill at the end. Also make sure that you know what’s “In/Outside” the scope of work that they’ll be performing for this fixed rate.
– Have them Regularly Disclose Legal Fees.
Make sure that you know exactly how much time that they’re putting in. Have them regularly disclose this information to you with monthly invoices.
– Do Whatever you can Yourself!
There were a lot of things that I could’ve done differently and by myself. By taking on more responsibility you can avoid those hourly fees building up.
Hope this helps and let me know what you think in the comments below. As always “Have a great and profitable week!”.
As always, please email us any real estate questions to HelpMe@DeRosaGroup.com and we will answer them on an upcoming episode!
Learn more about The DeRosa Group at http://www.DeRosaGroup.com or on BiggerPockets.com – https://www.biggerpockets.com/renewsblog/author/mattfaircloth/
Matt & Liz, founders of DeRosa Group, were recently second-time guests on the BiggerPockets Podcast.
Check it out: https://www.biggerpockets.com/renewsblog/bp-podcast-203-finding-deals-funding-contractors-mentors-matt-liz-faircloth/
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