What do you use your real estate attorney for?

Question

I'm a new investor and I am learning as I go. The Bigger Pockets podcast, forums, and webinars have been a great help so far. I have a realtor who has been very helpful in answering questions and getting me into properties I'm interested in. I did make one offer on a four-plex so far, but the offer was not accepted. I'm now looking at making an offer on another property.

I started looking into getting a real estate attorney because it seems like other investors recommend that. So I'm wondering how involved real estate attorneys generally are for investors, and what you usually use them for. I plan to use a property management company for most or all of my properties, so I expect to use the leases drawn up by the property management company. The property management company also has attorneys they work with in case an eviction is needed (though they said I'm welcome to use my own if I ever want to do that). I did ask an attorney about whether I should form an LLC, and he did recommend that, so I plan to do that. But, he charges $1,000 to set that up, and I feel comfortable forming it on my own (it's a pretty straightforward process in Minnesota). I also thought maybe I'd have him look at some language I want to add to the purchase agreement (such as asking for estoppel certificates for all tenants, asking for copies of all lease agreements, etc.). But that is getting tricky. The attorneys seem to want to write the purchase agreement themselves in that situation, and my realtor says if the attorney writes up the purchase agreement, then the attorney will be representing me (rather than my realtor representing me). I don't want to do that, especially if that means my realtor will not get a commission.

So I'm wondering what you use your real estate attorney for and what you do yourself. Do you use your attorney to set up LLCs for you? Do you have them draft purchase agreements? What aspects of your investing are they involved in?

Any feedback you have would be greatly appreciated.

Stacy Schmidt · Answer

Thank you for all the feedback. This will definitely help me move forward in deciding which tasks I should get help with from a real estate attorney.

Ujwal Velagapudi · Answer

I've never used an attorney for any RE transaction, and have always done everything myself except when I was forced to use an attorney for an eviction to represent my business. First, out of necessity to save money, and later on just because I felt like I had learned over the years enough to do my own contracts. My next purchase will be a much larger one than I have ever done in the past, and something that will involve more moving parts, so I would get an attorney to review everything with minor edits, or for a large enough deal just have it drafted from scratch. I would probably do an LOI myself, and only upon acceptance and some minor due diligence would I spend to get a full purchase agreement written up. It just depends on your risk appetite and what you're willing to spend. I also love contracts and it was also a part of my day job, so I've just tried to learn more and more over the years in this area.

If you have a PM, just like you said they are there to write your leases and they should have in house counsel or someone they use for their operations. For most evictions my PM handled it, using their legal team. For a new purchase, same goes for most brokers in using their lawyers. These brokerages have had vetted purchase agreements, usually boiler plate style the agents re-use, so if you wish to make any amendments then I would try to go through their organization if possible since that is where it originated from. Your agent should be working for you to see if their team can consider making the minor amendments you want. To save some money you can also propose the amended terms in email format to see if the seller would even accept them, and then you can decide to invest in having an attorney amend/re-write a purchase agreement for you or not.

The last thing I would pay a lawyer for is to set up a simple LLC.

Bob Floss II · Answer

@Stacy Schmidt It varies by state and region. Some states require an attorney for every transaction and some states have essentially made an attorney expendable. Obviously I'm going to be biased towards always using an attorney for everything, but I get that people want to save money.

My only caveat is something an old attorney taught me years ago. If they're cheap and don't want to pay for it to be done right, they'll have to pay 10 times as much later when I have to fix the mess they made.

David M. · Answer

@Stacy Schmidt

In NJ it’s a little different.  The realtors write the initial purchase contract.  During the attorney review period, the buyers and selllers can elect to have an attorney review the contract.  I use the attorney to handle the contract work and anything that comes while under contract.  This includes ordering title and helping with closing (although nowadays there are separate closing agents)

Oh, I guess I should clarify:  in “northern” nj we customArily use attorneys.  In “southern” they don’t.  So I’m sure it will vary from locality or locality....

As you may have read in bp, there is plenty of discussion how LLC’s are not necessarily needed for long term rentals.  Even the LLC I have my attorney basically said I didn’t need much since an operating agreement isn’t necessary since I’m single member.  In NJ registering an LLC is simple as going on website, selecting an unused name, paying the ~$100 filing fee, download your article of formation, and you are done.

How that helps. Good luck