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10 Costly Mistakes to Avoid as a New Real Estate Investor No partner should have to be thrust into involuntary partnership with a stranger. The solution: a buy-sell agreement. The buy-sell agreement is not a separate document. Rather, it is simply a provision in the main operating agreement between the partners. It typically identifies certain ‘‘triggering events,’’ the most common of which are death, disability, withdrawal, expulsion and bankruptcy. It then details what will happen in each of those instances. Usually, the partners agree to give the surviving partner a right of first refusal to buy out the other partner’s interest. The agreement also should set forth the procedures and formulas that will apply to this purchase including timing, valuation, and dispute resolution. The benefits of such an agreement are many: the partners can keep ‘‘outsiders’’ out, ensure the continued existence of the entity, ensure continuity of management, reduce involvement of co-owners not meeting their obligations and avoid valuation disputes. All of these benefits go straight to the economic bottom line. It’s wise to obtain estate planning advice upfront. People who are acquiring assets most likely have some body they want to provide for when they’re deceased. If an investor has an estate plan al<strong>read</strong>y in place, he or she should get an estate planning lawyer’s input before taking title to a new investment to make sure the acquisition is consistent with that plan. The estate planner may, for example, have concerns regarding how ownership is vested (e.g., in a trust?), or strategies to enhance the overall estate plan (e.g., taking title in a family limited partnership to take advantage of certain valuation discounts). Failure to be aware of these strategies and integrate appropriate action into the investor’s plan may undermine the investor’s estate plan and have severe economic consequences to the investor’s heirs. If an investor does not have an estate plan, he or she should definitely get one—if not before taking title, then as soon thereafter as possible. These are just a few of the many reasons why all real estate investment agreements should be in writing. Protect yourself by handling your real estate investment ventures as the business it should be. 24 10 Costly Mistakes to Avoid as a New Real Estate Investor
10 Costly Mistakes to Avoid as a New Real Estate Investor Mistake # 5 The Lone Ranger Mindset The lone ranger mindset has derailed so many new investors before they even begin. A key to real estate investor success is building the right team of professionals. At the very least, you need good relationships with at least one real estate broker, an appraiser, a home inspector, an escrow officer and a lender, both for your own deals and to assist with financing for prospective buyers. Most new real estate investors don’t understand the concept of a real estate investment team at first, so most people have a difficult time with real estate investing. Some new real estate investors have a “lone wolf” trying to do too much myself mindset. Eventually, most new real estate investors usually learn that they need a real estate team they can trust and rely upon. <strong>25</strong> 10 Costly Mistakes to Avoid as a New Real Estate Investor
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