What to Examine Before Investing in Real Estate

Rosenblatt Law Firm is proud to represent many clients that successfully invest in real estate.  As a new investor, you should be prepared to answer several questions about yourself: 

  • What is your appetite for risk?

  • What are your resources? and

  • What are your goals from the real estate investment? 

There are also several external issues worthy of consideration before investing in real estate:

  1. Who will manage the property?  Simply hiring someone to manage the property is not enough.  Proper restrictions must be in place—even for professional managers.  Leases may not extend beyond the period an owner is willing to release the property and managers must be held accountable for expenses incurred because of their negligence or recklessness.

  2. How to protect the owner from risks?  Placing the property ownership in a legal entity, as opposed to personal ownership, will limit the risk to the individual or business.  Most people recognize the need to purchase insurance as an obvious business expense but fail to see utilizing legal entities can be an essential part of limiting even greater risk to the business or individual.

  3. What type of lease should be used?  Beyond utilizing a lease specifically tailored to your situation (as discussed in a separate blog entry), there are several choices typically available for a commercial lease, including a gross lease or a triple net lease.  The gross lease, which is easier to compute, provides equal monthly payments, but the landlord bears the risk that expenses will increase and reduce the net income.  A triple net lease, on the other hand, requires the landlord to keep track of costs, taxes, and insurance and update the rent each year.

Owning real estate can be lucrative; being successful, however, requires both planning and regular oversight.