How often did you ”use a lawyer” starting out? How often ” ” now?

Question

How has your relationship with your lawyer grown as your company has grown. Have you ever had to switch law groups because of work load or any other reason?

If you don’t mind answering, what are your legal cost?

Justin Kay · Answer

As an attorney, I don't think your legal needs should grow or shrink over time (on a "per unit" basis), but it will evolve.

There is very little an attorney can do that you can't do yourself if you have the right knowledge and experience (apart from those actions that require a law license, like representing a corporation in an eviction matter in some jurisdictions). 95% of evictions are very basic. LLCs are SUPER easy to create and maintain. Most legal documents (purchase agreements, leases) come on prepared forms, or are really basic to create from scratch if you know what to look for. But it's only easy if you know what you're talking about and have experience doing it. About 40% of what you'll read online is wrong, and just bad advice. Good luck finding which part is the bad advice.

When you're starting out, hire an attorney that has more experience than you in the real estate area, but you don't need to pay for the big gun. You aren't the big dog in town, you aren't leasing or buying from the big dog in town, and you don't need the big dog lawyer. If they have 5 more years experieince than you do, and they seem like an intelligent person with a good referral, engage their services. Give them your first closing, your first LLC, your first Property Management Agreement, your first Lease Agreement, etc., and ask them questions. Learn what to look out for. The second one, look over the agreement yourself and then send it to the attorney. Ask similar questions. The third one, look it over yourself and ask the attorney to confirm your suspicions and concerns. Use them less and less on the routine stuff as time goes on and your knowledge grows. Eventually you'll either feel comfortable analyzing it yourself, or you'll send it to the attorney and think "man I wasted my money." But as time evolves, their knowledge and hourly rate will grow too. Use them for more complex stuff, that you're more likely to come into contact with as you get larger.

From there, compare their hourly rate to what it would cost you to do it yourself. If it would take you 10 hours to do an eviction (taking time off work, traveling to the courthouse, learning the updates in landlord/tenant law), maybe $500 for an attorney sounds good. Maybe not. It depends on what you're giving up to do it.

I've also never been a fan of large law firms. You pay for those big offices. I'm also not a fan of small shops that try do to everything. They can't do it all well. They do some things well, and the rest they get through to keep the doors open. If you go to a restaurant and see Italian, Chinese, and Mexican food on the menu, they're probably not doing any of them good service. Same with attorneys. Find someone that does that area of the law to solve that issue. Real Estate attorneys can do LLCs, they can also prepare SEC filings and do your tax returns, but I wouldn't want them to. Just like I don't want advice from my dermatologist on my heart condition, or advice from my cardiologist on a mole on my back.

Marcia Maynard · Answer

For over 24 years we have been buy and hold investors of single family homes and small plexes. Currently we have 17 rental units.We created two LLCs for our holdings and engaged the services of an attorney who specializes in business matters to do so. The legal services included a meeting with the partners, creating the Operating Agreement, creating the Memorandum of Action in Organization of the Company by the Members, filing with the state, and periodic review and adjustments to the LLCs as necessary over the years. We pay a premium hourly fee for the services of the attorney and a lower hourly fee for services of other staff in the attorney's office who assist the attorney.We've only needed to engage the services of an attorney on three occasions to evict tenants by court order. We work with an attorney who specializes in Landlord-Tenant Law and Evictions for such. Because we are members of the local rental association, we get a discounted price from the attorney that serves the association. The eviction service was a flat rate fee of $600 + costs = about $800. It included a review of our rental agreement, preparing and filing legal documents with the court, serving legal papers to the the tenant, representing us in court in front of the judge, and securing the services of the county sheriff to enforce the court order.So far, our real estate purchases have not required the services of a Real Estate Attorney because we work with a top notch Escrow Agent, a great Realtor, and a good Loan Officer. The Purchase and Sale Agreements have been straightforward and primarily standardized.  However, we did purchase a few properties on Contract from a family member and did seek out the services of an attorney to review and prepare documents for that purpose. Depending on the type of work that was necessary, our attorneys  charge a flat fee for preparation of standard documents and/or an hourly rate for other services.

Another area that may require the services of an attorney would be related to insurance and  liability issues. Since we have established and maintained a great relationship with an insurance broker, we have in place appropriate insurance policies to provide us with a layer of protection. Our insurance agency will go to bat for us when we have a legitimate claim or if someone tried to sue us. It's the scenario of "Our people will talk to your people." Insurance companies have strong legal teams to protect the insurance company interests and those of their insured when facing adversaries.

Justin Kay · Answer

@Hobie Day California's market is very different than NC's. Everything is more expensive in CA, so take that into consideration.

If you gave me an agreement to look over, and it was a basic form, maybe 0.3-0.6 hours. If I had to re-write a good portion, but not too much of it, maybe 0.5-1.5 hours. If you want a custom suited form, probably closer to 3.0-5.0+ hours, depending on what you want. Take that time and multiply it by the attorney's hourly rate, then discount it by their "efficiency."

Funny thing is, most people try and get away from the 2 hours, and into the 0.2 hours, by doing the work themselves and customizing a basic form and giving it to an attorney to "bless it." But they usually screw it up. Then the attorney has to spend more time trying to correct what you did, and it ends up being 4 hours instead of the original 2, because the attorney could have taken a former "custom" agreement from another client and modified it to suit your needs, but what you presented was so abnormal they had to create a "new" custom agreement.

John Warren · Answer

@Jonathan Watt I always use an attorney to close, but that is normal here in Illinois. My attorney is very reasonable, and charges a flat rate of $685 for closings (even commercial ones). I feel like that is pretty cheap to have an attorney represent me. He also sets up LLC's for his clients, and I have used him several times for this.

I also have used attorneys when I have evictions. I don't have a choice on my properties that are owned in an LLC, as it is required by law in Illinois. My attorney for evictions is pretty fair, and he only charged me around $500 for filling and going to court.

Nathan Gesner · Answer

I hired an attorney to help me develop custom lease agreements. Now I rarely hire an attorney. The last time was two years ago to review an updated property management contract and, even though my attorney is the best in the area for real estate, I still felt as if I wasted my money.

Hobie Day · Answer

@Justin Kay thanks, that’s good to know. So it’s probably smarter not to add onto the BP CA-specific landlord forms myself, but rather just tell my attorney what I want to add to it?

Justin Kay · Answer

@Hobie Day It depends on how familiar you are with what you want. I've known landlords that have seen enough agreements that they can tell you exactly the clause they want, so they put it together and have the attorney "tie it all in" and it isn't that expensive. But they're very familiar with their agreements. If you're starting out, and aren't sure what you're really altering or the ramifications of the changes you're making, yes I would just hire an attorney and tell them what your intended goal is (but tell them you want them to modify an existing agreement, not create a new agreement), assuming you trust the attorney.

James Wise · Answer

As your business grows so will your need for legal services. At this point we've got a legal team on retainer. I think we're spending roughly $50k/year.

Charles Dobens · Answer

Great question but should probably be more specific.  What do you need the lawyer for? Forming your entity? Handling the contract negotiations? Evictions? Then you get into further specifics. Is it for a single-family fix and flip business or a multifamily business? Even this distinction makes for different recommendations. Also, always remember a lawyer is a vendor and you are the customer. The lawyer should have to earn your business every day.

Todd Rasmussen · Answer

@Jonathan Watt

Slightly less expenses than @James Wise. But we also have a lawyer on retainer ($700 worth at least). We hired him to draft a contract between us and subject to quit claim "giver" when we obtained a property in exchange for the commitment to pay off the existing mortgage. Felt it was necessary to document the expectations of all parties involved because of the inherent complications of doing something along those lines. Haven't changed law firms but most likely will eventually end up with a real estate law practice someday. In the meantime have gotten 90 minutes or so of legal advice since then without getting another bill.

You're asking why we didn't hire a real estate lawyer?.... Three of them said not to do it. (shrugs)

How often did you ”use a lawyer” starting out? How often ” ” now?

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