INVESTORS’ CORNER: The top 3 things investors do to kill deals

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As a real estate attorney and investor, I frequent many transactions, successful and unsuccessful. The failures I observe commonly result from the same factors – the “Big 3 Deal Killers!”
The partnership
Investing with another party? You may unknowingly form a partnership. Defined as an association of two or more persons  carrying  on  as  co-­‐owners  of  a  business  for  profit, regardless of intent, this is a legally recognizable entity.  By way of a partnership, liability can attach to all involved.
Perhaps after forming a LLC, or limited liability company, you  believe  yourself  immune  from disaster.  However, formation alone is insufficient.  An operating agreement, which provides the terms of governance, should be drafted at the inception of the LLC.  This document should articulate the significant details of the working relationship, thus avoiding project loggerheads.
The operating agreement should address such factors as:
*Decision-­‐making authority, which is potentially troublesome with only two members, as  there  is  no majority.
* Injection of additional capital.
*Share and allocation of losses.
*Inability to sell property and long-­‐term plans.
*Who will be the project manager?    Simple as  it  may  seem,  these  expectations  must  be  articulated before the project begins.
The contract with the contractor
Working with a contractor? If so, then the relationship is likely governed by a contract.
Oral contracts are valid in North Carolina.  If you and your contractor verbally agree to terms – such as  a  completion  date,  expenses,  scope  of  work,  or  the  use  of  subcontractors  –  then  a contract exists even if a written contract is never executed.
With the repair person, investors should fully articulate the terms of the agreement, and reduce them to writing.  Simply put, repair-related issues frequently arise, and a written contract trumps its verbal counterpart.
Working  capital
A lack of working capital is the bane to a viable real estate deal.  Underfunded projects struggle to finish.  Smooth seas are often interrupted with unforeseeable encounters.  Having a reserve of working capital  to  deploy,  combats  the  inevitable  unanticipated  repair  issue, a  project “hiccup.”
When a  project  lacks  the  requisite  capital  reserve,  trouble  arises  and  lawsuits  are  filed.  I would much rather work  with  a  successful  investor  healthily  growing  a  business  than  try  to  defend  one  owing great sums of money due to poor planning.
Attorney Craig Morgan, is a member of the Metrolina Real Estate Investors Association, www.MetrolinaREIA.org, which provides education, networking, and mentoring to Investors in the Greater Charlotte area. You may contact Craig at  [email protected].