Pop Quiz Commercial Real Estate Investing

I was once told that if you were to take all real estate attorneys located in Illinois and laid them down end to end on the equator – it’s a good idea to let them stay there. This is what I learned. What do you think it is?

I’ve written previously on the need to use due diligence when purchasing commercial real estate. The need to investigate prior to Closing all the important aspects of the property you are buying. The importance of reviewing each commercial real estate purchase with a mindset that once the Closing takes place, there’s no turning back. The seller has your money and has gone. If post-Closing problems occur, Seller’s representations in the contract and warranties will at worst, result in costly litigation. CAVEAT EMPTOR! “Let the buyer beware!”

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It’s like the old Fram(r) oil filter slogan during the 1970’s “You have the option of paying me right now, or later”. In commercial real estate, however, “later” may be too late.

The purchase of commercial real estate is not like buying a home. It’s not. It is not. It’s not.

In Illinois and a number of other states, nearly every residential real estate transaction requires the buyer to have a lawyer and a lawyer for the seller. It is likely to be a good idea. It’s good for consumer protection.

The “problem” the issue creates however, is that every lawyer who handles the residential property market thinks of himself or herself to be a “real estate attorney”, capable of handling every real estate transaction that arises.

We learned in law school that there are only two kinds of property such as personal and real estate property. Therefore – we intuit – in the event that we’re competent to manage the residential real estate closing and we’re competent, then we’re also competent to handle the commercial real estate closing. Each one is “real estate” and, if so, what is the distinction?

Answer: Yes, they are all real estate. However, they’re not identical.

The legal risks and issues in a commercial real estate transaction are remarkably distinct from legal issues and risks of a residential real estate transaction. Many are not even alike. Attorneys who specialize in residential real estate closings are not faced with the same challenges as lawyers concentrating their practice in commercial real estate.

It is a matter of expertise. It is either you are aware of the challenges and dangers that come with residential real estate deals – and how to manage them – or you don’t.

One of the most important things to keep in mind is that the myriad consumer protection laws protecting homeowners from foreclosure have no applications to – and provide no protection for – buyers of commercial real property.

An effective commercial real estate practice demands an intensive and focused investigation of all matters relevant to the transaction by someone who understands what they are looking for. In essence, it is the exercise the practice of “due diligence”.

The practice of due diligence isn’t inexpensive, but failing to exercise due diligence can cause financial ruin in the case of the commercial real property investor. Don’t be “penny smart and pound foolish”.

If you’re buying a home, hire an attorney who regularly represents the buyers of homes. If you’re purchasing commercial real property, get an attorney who regularly represents commercial real estate buyers.

A few years ago, I stopped handling the residential transactions in real estate. Being a busy commercial real estate lawyer, I even employ residential real estate counsel for my own home purchases. I do that because residential real estate practice is distinct in comparison to commercial real estate.

Maybe I “harp” about the importance of having a competent lawyer experienced in commercial real estate transactions. I am convinced. I believe it is essential. I think if you’re going be investing in real estate for commercial purposes, you should use your critical thinking skills and be smart.

The POP Quiz an easy test of your critical thinking skills:

Please take a look at the following scenarios and then answer the questions TRUE or FALSE

Scenario No. 1. It’s Valentine’s Day. You are in hot pursuit of the love of your life. In the past few weeks, she confided in you that all she’d ever thought of on Valentine’s Day was that her love would turn up at her door, dressed in a white tuxedo , tails and a top hat and bring her stunning bouquets of flowers. You’ve booked the tuxedo but you’re worried about the amount you’re spending.