What You Need to Know About Essential Legal Foundations in Real Estate Investing

Roger King Agreements

Not all states in the US require an Operating Agreement. Whether it’s a requirement or not, doing business without one is risky. It’s smart to have an Operating Agreement in place whenever you’re doing business with anyone. Partnerships and working relationships usually start off full of enthusiasm and excitement. Usually, we start new projects with great hope and vision for the future! In that initial excitement, it can be easy to not consider that there could, at some point, be a discrepancy in the terms and responsibilities of a working relationship. Have you ever been in a situation where other people remember an event or situation differently than you do? That is not a situation you want to experience in business. 

Starting any kind of project or business is more likely than not, to involve many moving parts, factors, and influences. Often, there can be issues that not all parties will ever imagine being a factor before the project even gets started. Operating Agreements are designed to address as many eventualities as possible BEFORE they come up, eliminating debate over verbal agreements and managing the dissolution of a working relationship, should it come to that. It is designed to protect everyone involved.  These critical documents can be the difference between a protracted lawsuit and a quick dismissal in court.

Years ago, I formed some LLCs and trusts with two partners I’d previously worked with. We were excited to build some new townhomes because the market was so promising. Having worked together for so long, I felt I could trust these two to execute their roles efficiently and effectively.

As the project got underway, I went about my business working on other projects. I checked-in from time to time, allowing them to manage this project. What I didn’t know about was the lack of managerial oversight they had on their contractor and the low quality of workmanship which he was providing.

After a couple of years, the need to take over the project was apparent – because my money was at risk. I began another year-long process investing countless hours and hundreds of thousands of dollars to get the project completed and stabilized. I knew there were two other investors in it, but I was unaware of an additional three other investors! Those folks reached out to me and let me know they, too, had nearly $300,000 invested. It just kept getting worse!

While it finally got completed and stabilized, this project was a major challenge in several ways for a long time. The lessons I learned are incredibly valuable, and I want to share how you can avoid such disastrous situations in the future. 

To get the most protection out of your Operating Agreement, there are a few key points to consider before drafting the document. I have put together a couple of items you will need to get the most out of your next venture. My “Real Estate Investor Starter Guide: The essential and imperative legal foundations for your investments and business” include documents will go a long way to protecting your time and investment. Use these as a reference for creating your own JV agreements and start your next project with peace of mind. 

Go ahead and grab your FREE copy of the “Real Estate Investor Starter Guide: The essential and imperative legal foundations for your investments and business” now:

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