In this episode, you’ll hear:
- Fee Structures to Expect for Real Estate Attorneys
- Finding the balance between real estate law and the reality of real estate investing
- When Do You Need To Work 1-1 With a Lawyer
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Fee Structures to Expect for Real Estate Attorneys
Real estate attorneys are (unfortunately) not the type of attorneys who will just work on contingency. Ie. If you win, they get paid. Most real estate attorneys will either flat fee their work or work on retainer. Retainer attorneys will require an upfront deposit of usually a few thousand dollars they will hold in their trust account (essentially like an escrow account). They will then bill you hourly based on the amount of work they do. Depending on how much work the attorney does, you will either need to supplement the retainer and pay more or get a return of the difference of the legal fee remaining.
Finding the balance between real estate law and the reality of real estate investing
If you hired a lawyer for every single legal decision you made as a real estate investor, you’d have no cash flow. You know this. I know this. You also probably know that there’s a bit of a disconnect between some legal advice and how things shake out in real life. Of course, you’ve got to follow the law, but sometimes advice like putting every property into its own LLC has a practical limit. The same goes with communication. You know at this point (see episode 65) that I dislike texts, that doesn’t mean you have to communicate only by certified mail either. Finding that sweet spot between protection, sanity, and efficiency is key.
When Do You Need To Work 1-1 With a Lawyer
Law firms & lawyers. Love ‘em or hate ‘em. As a real estate investor, chances are you can’t avoid them forever. My goal through Landlord Law School is to severely reduce the amount of legal fees investors need. However, sometimes working with a lawyer isn’t always a bad thing. Case in point – a variance or zoning application. Those are huge opportunities for your properties and your cashflow. And definitely NOT something I am just DIYing. Also some matters – like evictions if you own your properties in an LLC – will require you to work with an attorney. Why? Because you aren’t your LLC (yay asset protection) but that means you can’t represent your LLC in court in most states because that would mean you are being a lawyer!
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Resources Discussed in This Episode
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Bonnie Galam 0:11
Hello, friends! This week’s episode is a little bit unexpected. It’s not what I planned to have on deck. But I think it’s a really important lesson. And so we’re shuffling things around here. That’s alright, we can pivot. But, you know, what I want to talk about today actually came from a question I got from an attendee of one of the workshops I held. And while this question was, you know, unique to my program, I think it’s a really important question to tackle. Because the reality is that if you’re a landlord law school, or you’re using, you know, any other type of DIY, legal program or service, I want to kind of pull back the curtain on where you should be DIYing in handling this stuff and perhaps even why and where you should also be working with a lawyer in certain circumstances. And so in this episode, you’re going to learn, you know, where the gaps are in traditional legal services. And if you choose to fill that gap in on your own, great; if you choose to fill that gap in with the help of, you know, me and my program through landlord law school, while there are promotions going on, I’d love to have you in there. And I’ll include, you know, enrollment information in the show notes. But I think that this is a really important legal lesson for all real estate investors to really understand because it can cost them a lot. And I think that, you know, a lot of this just comes down to money and the economics of legal services, and what’s healthy is, is that small problems still cost the same to lawyers, but don’t necessarily have the same value to you. And so let me talk about what I’m talking about here. And so whether you’re suing someone for $50,000, or $5,000, the lawyer in all likelihood is going to charge you pretty close to the same amount, because the legal mechanics, like what actually has to happen, in terms of like, legal work, of getting you to a resolution just isn’t that different. And you know, maybe like the discovery period is a little bit shorter, in one versus the other. But generally, it goes, you know, complaint gets filed, and there’s discovery, and then there’s some motion practice, pretrial conferences, and then there’s trial, and then sometimes even an appeal. And of course, at any point during that process, you could settle. But the reality is, is that lawyers get very expensive, very fast. And we don’t make a determination of what we’re going to charge a client based off of like, what the value of the cases, it’s very different than what you see in terms of like personal injury lawyers, like the lawyers who you see on TV where it’s like, you don’t pay us unless we win. Like, that’s not how this works. For real estate investors. I’m really sorry to say that, and that’s why I think it’s, you know, really important for you guys to understand. And, you know, I’m gonna get very frank in this conversation about like, what the, you know, the mechanics of a law firm, who you may hire for, you know, legal services for you is going to do, I don’t want you to be offended when we say, hey, no, you actually have to pay
Bonnie Galam 3:26
a retainer upfront, because, you know, the only lawyers you’ve ever had to deal with Reverend encountered are these, you know, TV lawyers, and they are very upfront about they don’t get paid upfront, but they will very happily take a third of your total recovery at the end of the day. And there’s nothing wrong against that, it’s just a very different way, it’s two totally different industries. And so the the payment structures aren’t going to be different. Typically, there’s not, you know, a huge payday at the end of the day, on, you know, plaintiffs or defendants side in you know, real estate type of matters, we’re just simply trying to get to a, you know, a resolution and DiSalvo wrong. And in the, you know, the personal injury type of situations that do pop up in the real estate space, you know, like the slip and falls, and then that’s largely where insurance is going to kick in and cover that expense anyway. And so I don’t want you to assume that also that your legal fee will be paid if you win, I hear this. At the firm. I used to hear this a lot, where they were very comfortable paying a lot of money for an attorney because they thought they had a really strong case and then I would have to explain to them, Hey, look, even if you win, there’s no you know, legal basis for them to have to pay your legal fees. And so that’s just going to have to be kind of skimmed off the top. Because the reality is, is most lawsuits are situations where each side kind of pays their own life. And you should be assuming that you’re paying for your own attorney unless there is a fee shifting statute in place, and that sometimes comes up around, you know, like consumer fraud types of issues, you see it come up in, you know, employment discrimination types of issues, where there’s state statutes on the bulk that permit the winning party to get their attorneys fees. And then the other situation would be like, if you’ve pre contracted for this, if you’ve put into your lease, or you’ve put into your agreements of sale, that the winning party should have their legal fees paid by the losing party, then there’s also that situation there. But the problem again, on depending on the speed shifting types of contract agreements, is that when you settle, the judge isn’t deciding that and so it’s kind of just lost in the wash of the final resolution. And so if someone’s saying, like, Hey, I’m gonna pay you $10,000, even though you really want $15,000, but you’ve got $5,000 in attorneys fees, like they may be saying, like, Hey, this is this is all you’re getting in terms of take home, will give you 15, but five is going into your attorney. And so that just the the attorneys fees kind of get lost in the shuffle, they get lost in the wash when you’re settling a lawsuit of anything. The the also thing is that there is a time value of lawyers, I you know, strongly believe in no flat rate legal services. And when I was at my firm, that’s the only type of you know, legal services that I would offer. But the reality is, is not what not every state permits that type of fee structuring and to it is really, really hard to do that, once you get into like litigation. I do think you know, flat fees are very reasonable for some types of transactions for contract preparation. But when you get into lawsuits, there’s a million different ways that these things can shake out. And so most lawyers be and also in most states, you are going to end up with a hourly fee type of an arrangement. And yeah, that also is going to include a usually a pretty hefty retainer minimum to even get started. Which yes, these retainers in most states will get refunded if you don’t build up to the to the minimum hour. So say, an attorney says, Hey, have an initial 5000 or $10,000 retainer, and your bill only turns out to be $4,000, then yeah, you’ll get that refund. Back in most instances, of course, read your engagement agreements. But generally speaking, that retainer you should estimate to actually be a lowball for what the fee will actually be. And you should plan and anticipate on replenishing that retainer should you know, things carry on for any long period of time, because long periods of time means long periods of attorney billing.
Bonnie Galam 7:40
And the reality is, is that hourly billing billing leads to cost inefficiencies, especially from the investor point of view. And I saw this when, you know, I was the consumer side of legal services, because I was getting, you know, billed hourly. And at some point, you kind of start thinking like, this is, you know, a $10,000 problem, I’m gonna end up paying attorneys $15,000 to get me out of this. And that can be really, really frustrating. And we joke about it, but this kind of stuff happens all the time. And sometimes it’s, you know, out of spite, where people are just willing to make the other person’s life miserable, and pay attorneys, whatever it takes to kind of make that happen. But also, sometimes, like, attorneys are just expensive, and things take time to get from A to B or to, you know, any sort of resolution. And you just have to keep the economics of legal in mind at all times. And, you know, especially when it comes to like, small kinds of questions. And when I was making landlord law school, I really based it initially off of the most common issues and questions I got as an attorney, and frankly, I billed for these as an attorney. And when I added up the hours and hours of lessons that I ended up with, it ended up to being several $1,000 If I was to bill for an hourly, and you know, not to mention all of the questions that I answered for free in the Facebook group for my students, I mean, it really added up to be, you know, worth multiples of the cost of admission. And that really kind of compounds when you think about the fact that a lot of lawyers don’t understand the mechanics of being a real estate investor, like they don’t get the behind the scenes, the operations as much as they understand like the high level laws, like they get, you know, landlord tenant law, or zoning law or litigation rules. And they kind of stick themselves in these boxes, because that’s what they understand. They understand how to operate within the confines of statutes and court rules and case law. But there’s also a lot of when I say gray area, but also just the reality of like, that’s just not how things work. And I felt that a lot when I was hiring other attorneys to do our legal work before. I myself became a real estate attorney. When I was like, I don’t think you understand how this is actually going to shake out when I go to a tenant with this or when I go to a contractor with this. And it was like deal. Then with like little robots who were like, well, this is the law. And this is bla bla bla bla bla. And like, Yeah, that’s true. I’m not saying to go do something illegal, it country diction to what an attorney is saying. But I also think that it’s, you know, sometimes it can feel very high and mighty and like lawyers are like kind of talking down from the mountaintop about like, this is the law, but you’re like, Yeah, but like, how is this actually going to shake out. And finding an attorney who can kind of give you that type of advice is something that should be really important to you as a real estate investor. Because most real estate attorneys are not also real estate investors like this is just a practice area that some people have, you know, found themselves in, it’s where they got a job. And I but I also don’t want to make it seem like I’m some sort of special unicorn, we’re definitely out there. But I wouldn’t take that as an assumption and should be, it’s definitely something you look out for when you’re looking to work with
Bonnie Galam 10:54
any sort of attorney in any capacity. Because, you know, when I started my law firm, I, I wanted it to be different than other lawyers, I wanted it to be a place where real estate investors could be proactive and not reactive. And as much as I literally made that, like my headline on my website, it wasn’t as easy as I found it to be. Because clients and even new investors who are meeting were calling me and saying like, Hey, Barney, fix XY and Z for me, and I’m like, God, how’d you guys even make this mistake to begin with, and I realized it was because the loafer model just wasn’t ever going to close that gap. It wasn’t cost efficient for, you know, investors to call their attorney before they made every single legal decision, like, and I knew that because I was a real estate investor before I was a real estate attorney, and we were not calling him to bill us, you know, three or four or $500 an hour to tell us, you know, hey, is this contract with a contractor? Okay, hey, is this text message to a tenant, okay. Like, there’s just a lot of really legal things that we do as real estate investors that we don’t have in house counsel to deal with, and it would not be cost efficient for us to be in house counsel. So in our in many ways, we have to know this stuff on our own. And, you know, unfortunately, the most common way that real estate investors were finding this out was when they did something wrong. You know, real estate law is a massive practice area, and involves, you know, landlord tenant law and zoning law and environmental law and Construction Law and, you know, lending laws and housing laws and their state laws and federal laws. I mean, there’s a lot of legal stuff that we have to deal with. And, you know, knowing what laws to even look out for, or, you know, what due diligence to ask for and financing options to propose is really just not something you can rely on a third party, like your realtor, or your lender, or even, you know, your title company. And the reason why is that, frankly, one, they’re in conflict of interest with you, they have a motive their commission to get the deal to a certain place. And that is in contradiction to what your interest may be, which is to get your preferred deal to the closing table, not just any deal to the closing table. And I mean, I’ll also just say that there’s just a very, very low barrier of entry into a lot of these professions. That’s not to say that these people don’t know what they’re doing. But a lot of them don’t know what there’s, and I’ve seen that I’ve dealt with it. On the legal side, where, you know, people are just getting straight up illegal, bad, incorrect advice. And you may not know how to vet that out. If you don’t have a basic understanding of, you know, the industry that you’re working on, and look, I sympathize with it. I’m not I don’t think the answer here is for everyone to go to, you know, a three law school and take the bar exam to figure out how to be a landlord. But it is a lot of a lot of legal stuff. And so, you know, power to everyone who for you know, getting into this industry because it is not like, you know, selling lemonade at a lemonade stand. It’s, there’s a lot, a lot of moving pieces, a lot of third parties who you’re dealing with, and a lot of risk involved. And that’s a big reason why I’ve created landlord Law School ultimately, was to create this guidebook that’s really kind of structured as like a Choose Your Own Adventure book that you can go through over and over again, depending on you know, like, what part of what I call, like the real estate lifecycle that you’re at, and really empower you in your own legal, legit legal education for what I consider to be less than the cost of one law school credit because yes, I did go back and check to see what the price of tuition is at my law school right now. And Yikes, it is a very expensive, very thankful that I had a full ride way back when in any event, but it is a price that I wouldn’t wish upon anyone and I’m always in forever on Team mortgages over team student loans. But now that you we kind of have covered like these holes that traditional legal services lawyers are leaving, you know, on the table, let’s talk about like when you should actually be calling them because even though now I’m more in this non typical with legal setting, I do think that there remains a lot of value of working with, you know, lawyers in traditional legal services. And I really think this part is critical to talk about because I see a lot of non attorneys selling legal products to landlords, in our industry that I think are one super bad quality, just like straight up awful to there, therefore, extremely risky to use. And three, I mean, frankly, these companies, I just think they’re just doing such an injustice to their customers, because they’re giving a false sense of confidence. And they’re selling something that frankly, shouldn’t be tempted. templated state specific docs, guys, like leases and agreements of shale should not be templated. period, full stop. And before recording this, I thought about like money. Am I being biased about this? Because I’m an attorney, I’ve made a lot of money doing leases and contracts for investors, like, can I separate, you know, Attorney Barney from investor, Barney. And, you know, I really thought about it. But I’ve also as an attorney, but on the flip side, and I’ve worked on transactions, where, you know, the initial contract proposal is from somewhere like, and okay, I’m gonna name names. But somewhere like LegalZoom, or bigger pockets, or easy landlord forums, or like worse, it’s like a borrowed lease or contract from an investor, buddy. And the reality is, guys that these documents are so custom to each transaction and each investor situation that by doing anything, literally anything other than working with an attorney to get these documents is frankly, a complete waste of money. And you’re leaving yourself with massive exposure. And when you think about the ROI that you get from these documents, over the lifetime, do yourself a favor, like don’t spend 50, or 100 bucks on IT spend like 500 to 1000. And if it’s like a commercial transaction, expect to spend more. But these documents are not an area where you want to be pennywise and pound cheap, you’re going to make hundreds of dollars a month, 1000s of dollars a year, and 10s and maybe hundreds of 1000s of dollars over your lifetime off of this document, and it should not cost you $100. Because I can tell you, I’ve looked at probably every one of these, you know, templated, document contracts and leases. Because I’ve had investors bring them to me to review them. And they’re all garbage. They’re all not up to date. They’re all not, you know, they’re just not worth it. Like don’t hang your investing business and the growth of your investing business. And frankly, I think one of the biggest risky areas of your investing business, which is dealing with tenants and acquiring new properties.
Bonnie Galam 17:36
You don’t want that to be done off of, you know, a borrowed or chibi contract, you want it to be good. And frankly, that is why I do not include them in landlord law school. I’ve had a lot of people request that I start adding, you know, leases to that, but I frankly think it would be malpractice, I’m not going to do it just to make everyone feel good about having you know, access to a template. Instead, what I have done is I you know, include contract review checklists for key terms. And so you know, what to look out for when you are reviewing contracts, whether it’s your leases, your contractor agreements, your you know, Cash for Keys agreements, those of which I you know, I do provide inside a landlord law school, but I’m not going to give you something that I think is going to give you more harm than good. Another area, where I do you think it’s really important to work with an attorney is zoning matters, I see a lot of people think they can DIY this one, and I definitely don’t recommend it. For one, zoning attorneys often have relationships with the board, which you then have to present in front of which is frankly, just very key for getting the proposal approved. Zoning boards are very political, and they’re very finicky. And you know, frankly, just knowing what type of evidence and what type of argument each member of the board needs to hear and then hitting that in your presentation. You frankly only learn that by doing it really often the way that zoning attorneys do. And you also want it to not step and you know, oversee too much. I’ve seen this happen a lot, where sometimes saying less is more. And that goes across the board, not just in like zoning situations, but you can really ruin it for yourself if you feel like you need to over explain or over go into different things like so getting the guidance and working with an experienced professional in that municipality is the most valuable thing you can do when you’re dealing with any sort of zoning board application. Also evictions. Eviction matters are often best handled by attorneys as well, depending on your state, and you’re holding structure, you may have no choice and have to work with an attorney. But even if you don’t have to work with an attorney in your state, then I think you still should and here’s why. The reason is that the evictions can be as simple as you know, something like getting a default judgment 10 doesn’t just show up and then go on on your merry way. But even to get to that point. There’s a lot of bureaucratic things that need to happen in terms of notices and complaint filing and you know, Call during the sheriff to come out to get from complaint to like empty property. Also landlord tenant court just it sucks. It is like a special place where like, you don’t want to be there. It’s just it’s an unhappy place. It’s something where you can waste literally your whole day. It’s highly inefficient. I’ve never been to a landlord tenant court that is like, run organized. And well, it’s just it’s like a cattle call. And so you can find yourself, you know, taking off a day from work and literally sitting there all day because one, Attorney cases are usually taken first. And two, it’s just a disorganized mess. And like the judge just like gets to things like whenever like someone throws something at his face. But finally, I think perhaps most importantly, eviction attorneys are frankly, just pretty inexpensive, because they do a bajillion of these cases every single day, every single week. And so they have a lot of cost efficiencies into what they do. So that these types of procedures are very flat rate, and very low cost. And so when you, you know, take the economic picture of it, the time that you would have to put in it, versus the cost that they charge, it usually just makes sense to delegate this one out. And if you’re finding someone who is extraordinarily expensive, then they’re probably not a full time like eviction lawyer. I mean, people love to hate on eviction mills. But be honest, these people do it in and out their paralegals do this in and out, they can give great advice and get things resolved. And then finally, you know, an area where I think it’s still important to work with an attorney is around litigation. Of course, again, where it is worth it, I talk a lot about what to do, if you get sued back in episode 54, where I share about my own lawsuit. But if you’re talking about situations where there are large sums of money at state, if it’s a fee shifting type of lawsuit, in which case, if you win, and you feel confident that you’ve got a strong case that you know that the legal fees are going to be covered by the other side. Or of course, you know, situations where you know, insurance is going to be covering your legal costs, then it’s you know, you should absolutely be pursuing that path don’t handle this stuff on your own. I know many states also have very friendly pro se pro se means when you handle legal matter in court without representation of an attorney, but many states have really good
Bonnie Galam 22:21
pro se resources, particularly when you’re talking about small claims court because that’s an area where it unless again, fee shifting type of lawsuit, where it’s not, you’re gonna end up paying an attorney more than the actual lawsuit is worth. And so figuring out how to DIY that, and win that and honestly, you guys know what I’m gonna say here, I just soft balled it right up to myself, the best way to win these types of lawsuits, whether it’s small claims or big claims, is by having offensive asset protection tools, having the contracts in place, having the records to be able to show having evidence because otherwise in all of these situations, you’re ending up with the He Said, She Said, and those are really hard to prove and really hard to win, doesn’t matter if you have the best attorney in the world. You don’t have evidence that that’s, that’s a problem that they can’t fix for you. And so in recap, I think it’s really important for real estate investors to understand when they should be utilizing an attorney over you know, any type of DIY service or program. And I also think it’s important to understand the shortcomings of traditional legal services. Because if you think you, you know, worked with the attorney, and now you know, Chuck, you’re covered, just go back a few episodes, listen to episode 54. When I talk about the time that I got sued, even though I thought I was doing everything right with my attorney, because a lot of this stuff just boils down to the risk of not knowing what you don’t know. And knowing where your attorney isn’t, you know, the most cost efficient way to solve all legal issues are to be proactive lawyers are not used in the most cost efficient way to be proactive in your legal matter. And, of course, the economics of closing that gap. And so if you liked this episode, please don’t forget to subscribe so that way you get notified when each new episode drops. And now that you know exactly where that hole is, in traditional legal services, let’s talk about what we could do to close this gap. Bye for now.
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