How Being an Attorney Forces me to Invest Differently
Being an attorney, I view things differently than most. I can't help it. My education forces me to think about “what ifs” such as risk and liability.
As an attorney, liability is one of my first and primary considerations. Protecting the investor is my job. So, when I think of investing in real estate, I automatically begin contemplating the safest approach from a liability perspective. Only then do I begin considering the financials.
The financials have to make sense. The earnings have to exceed the expenses or else the transaction does not make sense. Obviously. But too often the investor's perspective is distorted by thoughts about money. This makes sense because thinking about making money is exciting!
So, I think backward. Personally, if the liability is too high then I do not proceed with the transaction – regardless of the expected monetary return.
WHAT IS LIABILITY IN REAL ESTATE INVESTING?
When investing in real estate, liability is easy to find and exists in many forms. Some common examples include:
- Oral contracts, which are valid in North Carolina. So, you could be bound to an agreement even if there was no written contract.
- Utilizing a sole proprietorship, which makes the individual 100% liable for the business and is formed without any written documents.
- General partnerships that work like sole proprietorships, only with more than one member each jointly and severally liable for all debt. It is very common for a real estate investment to contain multiple partnership agreements.
- Contractor agreements lacking detail about timelines and expectations. Vagueness and ambiguity open the door to litigation.
- Recourse loans subjecting the borrower to serious hardships if unable to repay.
My investment strategy deprioritizes the financial return for the benefit of reduced liability. I don't shy away from risk. But I do take time to strategize and make an educated approach to investment. While no one can reduce all risk or liability, my job is to reduce it.
If you'd like to speak further about protecting yourself and reducing liability, please contact attorney Craig M. Morgan online.