4 Common Legal Mistakes Real Estate Investors Make

How to protect your real estate assets from legal mishaps

We all make mistakes, and as individuals involved in business. In fact, many successful entrepreneurs would claim if mistakes were never made—we would never learn from our mistakes. However, when it comes to real estate investing mistakes, especially errors of the legal nature, one can lose a lot of money and even their livelihood. If a new real estate investor makes a costly legal mistake, he or she can literally lose the shirt off their back. Of course, successful real estate investors still make the odd blunder, and yes, those mistakes are part of the living and learning process.

You can expect to make a few oversights during your investment career. However, in order to save yourself the pain of making a costly legal misstep, I’ve put together a list of the four most happy to share common slip-ups that new (and sometimes veteran) real estate investors make — because while you’re reading; you might as well take a lesson or two from the mistakes of those who’ve blundered before you. But seriously, it’s vital to be aware of the legal risks in which you place yourself, your business, your family, and your real estate assets. The following are 4 common legal mistakes that investors make:

1. Buying bad legal contracts

If you’re new to the real estate investing world be wary of paying for bad legal contracts. These are those too-good-to-be-true contracts at too-good-to-be discounts, often from office supply stores, websites, or friends. Remember, any real estate deal is only as good as the paper it’s written on. Not literally, but if you’re unsure about a pending real estate deal, don’t be afraid to ask your real estate attorney to review them first. A good attorney can review your contracts for a couple hundred dollars—and literally save you thousands in mistakes. Make certain you fill in the forms correctly.

2. Failing to disclose information on properties

Improper disclosures are another typical mistake for newer real estate investors. For example, if you’re property investment was built prior to 1978, its imperative, by federal law, that you disclose the use of lead-based paint disclosure when selling rental of properties. If you happen to exclude the information and are caught, you will face a hefty fine. In fact, your livelihood depends upon your awareness of the federal as well as the state requirements for disclosures (as state laws may demand additional regulations that differ by location). So if you’re selling your house privately, you must use a pertinent disclosure forms, and when in doubt contact a lawyer or disclose anything you are aware of that might fall under your disclosure laws—such as building conditions, water damage, electrical issues, plumbing issues, etc.

3. Illegal solicitation of money

As a real estate investor, you will need to solicit money for investing. However, oftentimes novice investors (without the strong contacts) do this via public advertising or direct mail with a method called syndication. When raising capital for your investments, it’s vital to be conscious of crossing federal and state securities regulations — for instance, advertising to the mass public might be considered a public offering. So prior to soliciting money from strangers it’s imperative that you review your marketing, solicitation offers, and petition for raising funds with an attorney familiar with real estate law to avoid hefty fines and even jail time for serious offenses.

4. Illegal discrimination

Many novice real estate investors might be disobeying laws set out in the Fair Housing Act of 1968, without even knowing it. This Act prohibits discrimination based on race, color, religion, nationality, familial status, age, disability, and gender, as well as sexuality, or source of income in some states. Your personal prejudices can get you in a heap of legal trouble when renting an investment property. As a landlord you can end up slapped with a pricy discrimination lawsuit based on your screening process, and based on the wording of your advertising. Plus, oftentimes, con artists are just waiting to spot an ad that could be mistaken for discrimination. Even if you have good intentions in mind, scoundrels will work in teams to ensnare you in a lawsuit. If you own a rental property, I can’t state the importance of remaining unbiased based on religion, marital status (i.e., choosing not to rent to unmarried couples with or without children), age, race, or income. In addition, you must be ready to make “reasonable accommodations” if a person with a disability applies for tenancy according to The Americans with Disabilities Act (ADA) prohibits discrimination against the disabled and also requires landlords to make “reasonable accommodations” to disabled tenants. My advice is to always consult a lawyer or veteran real estate investors with your housing ads to avoid any discrimination legal issues down the road.

About the Author

Karen Davis is a real estate investing mentor from Houston Texas. Karen began as a member at Lifestyles Unlimited in 2008, and has since bought and sold 12 single family properties. She became a Mentor and Trainer and currently owns 8 single family properties.