Creating the Ideal Real Estate Investment Contract Template

Key Components of Real Estate Investment Contracts

An investment contract in real estate goes beyond a simple agreement between two or more parties. Like any other real estate contract, investment contracts are legally binding and need to be specific to cover all aspects of the deal. A basic investment contract template should include:
• Specific identification of parties to the investment contract.
• A description of the property.
• Background to the purchase transaction which includes earnest money deposit and other transaction details.
• Provisions such as contingencies and the like between the parties for how the transaction will close escrow.
• Title/escrow provisions for the closing of the purchase transaction such as the person who determines whether or not funds can be released by escrows.
• Since an investment property usually involves an outside third party , the buyer/seller must supply information concerning the third party which can affect the value of the investment.
• The performance of the buyer including when the first installment of money is due, whether or not encumbrance financing is in place, etc.
• Buyer’s commitment to payment of real estate taxes and other assessments concerning the property.
When creating real estate investment contracts in templates, you can often translate your personal experience of managing contracts to your customers by covering the same fundamental aspects.

Vital Clauses in an Investment Contract

When creating an investment contract template for real estate purposes, there are a number of key clauses that should be included to protect the interests of both parties involved in the transaction. These may include contingency clauses, which allow for one or both parties to back out of the contract if certain conditions are not met. For example, a buyer may include a financing contingency, which requires that they are able to secure financing for the purchase price before the contract becomes binding.
Another important aspect of an investment contract is the timeline for the transaction, which may include deadlines for inspections, financing, and closing. This can help to ensure that the buyer and seller are on the same page throughout the process and can help prevent delays or other issues from arising.
In addition to these clauses, it is also important to address any potential risks or concerns that may arise during the transaction. This could involve including clauses related to disclosures, additional fees, or other issues that may impact the deal.
Overall, the key clauses in an investment contract will depend on the specifics of the deal and the goals of the parties involved. By carefully considering the key components of a real estate investment contract, you can help to protect your interests and ensure that the transaction goes as smoothly as possible.

Advantages of a Contract Template

A contract template for real estate investment is a completed contract with blank spaces that you fill in, and then print out for one use. You can then re-use the template to create other contracts for your real estate investment business.
Using a template generally tends to make the process of drafting a contract much easier, because you can simply tweak the template with regard to your particular situation. This not only saves time, but can also greatly reduce the chance of human error.
A template can also go a long way toward building and maintaining a reputation among real estate investors as being someone who is professional, organized and efficient.
A template can help you follow the letter of the law, because it will list all of the "boilerplate" legal language which you need in order to complete a legal document. Then you can just add language as needed according to your particular situation.
For example, in a template, you might have some language at the bottom that says "IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written," followed by a place to sign, with line items saying "BUYER: _________________________" and "SELLER: _________________________." For just about any real estate transaction, you will need to say that the person selling the property has indeed sold it to you, or you, as a seller, need to state that the buyer has bought the property.

Tailoring Your Contract Template

While a strong real estate investment contract template provides an excellent foundation, it will still need to be customized to fit the unique needs of each investment strategy or even each property. This could involve customizing the template for a flip, a wholesale, a commercial building, or even a real estate investment trust. Regardless of the approach, the general outline and structure of your investment contract should remain the same. In many cases, the details of how you choose to customize a template will be based on your specific investment approach. For example, a real estate investor looking to invest in unwanted properties may include stricter criteria for the condition of the properties in their lower-end template, while a premium investment seeker may strip this section down to a basic signature line requesting an agreement to show the house in "as-is" condition. Similarly, for a contract template that is customized for a fix-and-flip property, making certain that the investor has the right to inspect the property prior to purchase and sells price are also crucial. However, a real estate investor creating a template for a commercial property will need to include more financial disclosures and projections and may want to block out a period of time for due diligence and how the payouts will work. Crafting a good investment property contract template is essential to the success of any real estate investor and can provide a foundation for future deals.

Avoidable Errors

One mistake often made is presuming that a template is a one-and-done solution that doesn’t require any revisions over time. However, the real estate market is always evolving and so too must your contracts. At least annually, sit down with your real estate team to evaluate the efficacy of the template. Are there new developments that impact the contract language? Is any part of the contract ambiguous or unclear? If so , address needed changes as soon as possible rather than waiting until the next annual review.
Another common pitfall is failing to consider all aspects of the deal at the time of purchase. Consider a situation in which the purchase agreement included a provision that the buyer would acquire the interest by deed and there was no deed prepared at the time of the transaction. The problem is that the agreeable consideration (the dollar amount in the transaction) will not match up to any other aspect of the deal such as the deed or a mortgage. In other words, in this circumstance, you have a problem with the parcel that is likely going to cause the deal to collapse. It is important to be comprehensive in your template contract and to always think of the implications of each term and condition.

Legal-Related Tips

Guiding the language of your investment contract template is simple common sense: the buyer should not be committing to anything that the seller (or the property) does not do – and vice-versa.
Because these contracts are just templates, they naturally prompt the user to fill in a number of blanks. These may include:
• Property details such as address, survey parcel number, and legal description;
• List price of the property;
• Amount that will be paid down, and the amount that the buyer will be financing;
• Details about utilities and maintenance;
• Provisions for property inspections, escrow, closing dates, contingencies, title insurance;
• Contingencies for the sale failing to go through;
• Remedies for the buyer and seller if the other party defaults.
In addition to all the above, there are several legal considerations to keep in mind when drafting a real estate investment contract:
Your detailed template form will certainly need to be modified up and down from time to time, depending on the specifics of each deal (for example, if you’re buying vacant land and have a plan to build apartments, the provisions for maintenance are obviously going to be different than if you’re buying an office tower with an existing tenant).
It’s also important that your contract template comply with all statutory lending and disclosure requirements and preserve the requisite rights and remedies.
Furthermore, if the contract is not written properly, the law of the state in which the property is located may invalidate the agreement or award an amount of damages that is different from what you intended. From all these perspectives (contract and tort), you are absolutely advised to consult with a legal professional to make sure your investment contracts template will hold up to the test of both statutory and common law.

Finding and Selecting the Ideal Template

Locating the right pre-made real estate investment contract template can be a bit of an adventure. There are two main sources for the template – the Internet and using a professional contract template company. The latter is better because a strikingly large number of Internet-found documents tend to be more problematic than anything else. The best way to ensure that the template you find is reliable is to use a real estate investment contract template from a contract template company. As long as your contract template is from that type of a company, you should be fine.
On the other hand, there are a few points to remember when selecting a real estate investment contract template. As mentioned above, the Internet is the worst possible place to search for a contract template. A lot of the sites are run by lawyers mostly as a way to sell their services. It’s certainly true that most lawyers have the best knowledge and experience with contracts, but the fact is that most contracts sold online by lawyers are badly written. In many cases, they contain significant omissions that persuade new real estate investors to avoid using them. In the case of real estate investment contracts, you have two particular goals . The first is to get the property you want. The second is to get the property at the right price. Long story short, the most reliable, useful method of finding out what the price should be is to simply look at what similar properties in the area you want to buy have been selling for. Prices fluctuate over time, so that means going back a enough to compensate for those changes. This is also mostly what realtors do – so you might be able to find someone who can help you with that for free if you ask around. The other thing to remember is that the Internet is going to come up with templates that include far more than you will ever need. A typical real estate investment is not going to be something you can’t handle on your own. Like all templates, you should cut out anything in the template that you don’t think you’ll need in order to avoid confusion. Finally, if you need a lot of space to negotiate the contract terms, look for a template that gives that to you. Some of them are quite short, while others can stretch on for pages. Make your choice based on your needs there. In general, just remember that your templates should be flexible, reliable and easy to use.