Montgomery Commercial Real Estate Lawyer: Legal Tips for Purchasing Multi-Unit Complexes

 Posted on March 15, 2023 in Real Estate

At Gateville Law Firm, Montgomery Commercial Real Estate Lawyers assist sellers and buyers in the Kendall and Kane County areas. We help real estate investors and commercial property owners with their legal strategy when they invest in multi-unit apartment complexes and other real estate investments. Real estate investing requires patience and wisdom. This article will discuss real estate advice for purchasing and selling multi-unit buildings. 

Real estate investors must surround themselves with the right team of real estate professionals, including the following:

• Property Managers & Companies

• Commercial Real Estate Brokers

• Banking Professionals

• Electricians and Plumbers

• Accountants and Tax Professionals

• Attorneys and Law Firms

Commercial real estate professionals must provide timely and responsive services. Experienced real estate attorneys offer insight based on their legal expertise, knowledge, and specific experience from other real estate transactions. Additionally, the lawyers at Gateville Law Firm have corporate, estate, and income tax experience, which assists their clients in understanding the best way to oversee their real estate transactions, including the following:

• 1031 Like-King Exchanges

• Estate and Gift Tax Considerations

• Stepped Up in Basis Rules When Inheriting Real Estate

• Calculation of Real Estate Taxation

• Capital Gains Taxes

Real estate transactions involve significant tax-related decisions and consequences which impact one's wealth. Capital gains taxes occur when properties have increased in value from the initial purchase (or inheritance). Generally, a long-term capital gain is a gain that has happened over one year. Similar long-term capital losses may only offset long-term capital gains.

Market Research

Market Research is also critical for commercial property owners because it lowers one's risk profile. A significant goal of commercial property owners is managing risks, and investing in commercial real estate contains high-level investment risks. Hiring a good business and asset protection lawyer will assist commercial property owners with their business structure. The wrong business structure will involve substantial liability risks because one's personal and business assets will be exposed to creditors' claims and concerns. Trial and error, unfortunately, is a significant risk for real estate investors. The improper business structure ensures that real estate investors and commercial property owners are stuck with bad luck and bad decisions surrounding their businesses. On the other hand, the proper business structure can help a business's viability and a person and family's long-term economic insecurity.

Business Risks

Business risks and business structure planning are closely related because how a business is structured can impact the risks it faces and how it manages those risks. Here are a few ways in which business risks and structure planning are interlinked:

• Liability Risks. The structure of a business can impact the level of liability risk it faces. For example, a sole proprietorship or partnership exposes the owners to unlimited liability, while a corporation, limited liability company, or limited partnership limits the owner's liability. Thus, the choice of business structure can impact the level of risk exposure.

• Financial Risks. The structure of a business can impact its ability to raise funds and manage its finances. For example, a corporation can raise capital by selling stocks and bonds, while a sole proprietorship or general partnership may have limited options for raising funds. The choice of business structure can therefore impact the financial risks that a business faces. Additionally, banking institutions will be scared away from heightened economic risks.

• Operational Risks. The business structure has an impact on its business operations and the risks associated with them. For example, a business with a decentralization structure and financial losses will not be able to invest in good staff, which is necessary for the smooth operations of its business. Decreased team leads to a lack of customer satisfaction and mistakes, jeopardizing a business's reputation and standing in the community.

• Proper Tenant Selection. Financial distress will lead to bad decisions involving tenant selection. Poor tenant selection will result in increased evictions and cash flow concerns by late payments and non-payments of rent. Furthermore, poor tenant selection may result in increased property damage and neglect.

Distressed financial management hurts cash flow, which is critical for business success. For the following reasons, cash flow is an essential consideration for real estate investors.

• Income. Cash flow represents a real estate investor's income from a property after deducting expenses such as mortgage payments, property taxes, insurance, repairs, and maintenance. Positive cash flow means that the property generates more income than the expenses, which is a critical factor for the bank and future prospective business purchasers.

• Debt Service. Real estate investors who borrow money to purchase a property must make regular mortgage payments, insurance, and property taxes. Debt service coverage impacts one's cash flow. Positive cash flow ensures sufficient income to cover the mortgage and other debt service costs. Positive cash flow also leads to critical maintenance investments, which are regularly necessary with the property.

• Reserves. Real estate investors must set aside funds for unexpected expenses such as repairs, maintenance, and vacancy periods. Positive cash flow provides the investor with cash to cover unexpected costs.

• Return on Investment. Real estate investors invest in properties to generate returns. Positive cash flow represents a return on investment, which can increase the property's value over time.

• Liquidity. Cash flow is vital for real estate investors because it provides liquidity. Positive cash flow means that the investor has access to rainy-day funds that can be used to reinvest in additional properties, pay down debt, or cover personal expenses.

Population Growth and Demographics

Population Growth often results in higher demand and increased appreciation of property. However, population growth also results in increased competition. Therefore, a commercial real estate investor must evaluate the demographic makeup of an area, including crime and household income. The correct demographics will result in better tenants that demand high-quality facilities and solid property management. 

Economic Research and Trends

Economic research is also critical because it affects interest rates and employment trends. Lower interest rates will affect borrowing costs and abilities. In addition, high-stressed and recessions result in increased scrutiny of loan applications and business operations. As a result, banks are cautious about financial risks.

Kendall County Commercial Real Estate Lawyer for Real Estate Investors and Commercial Property Owners

In summary, Gateville Law Firm assists real estate investors and commercial property owners with their business structure and legal advice associated with real estate. At Gateville Law Firm, our staff has over 33 years of title insurance transaction experience, and our attorneys have strong business, tax, and asset protection legal backgrounds. Our law firm is responsive and experienced in real estate law. We have robust real estate and financial knowledge, including the following:

• 1031 Like-Kind Exchange Experience. A 1031 exchange, a like-kind exchange, is a tax-deferred exchange of one investment property for another. This exchange allows a real estate investor to defer paying capital gains taxes on the sale of investment property if the proceeds are reinvested into a similar property.

• Real Estate Closings. Real estate closings require experience and precision. We manage residential and commercial real estate transactions. Liens, judgments, and property taxes have a significant impact on closings.

• Business Structure and Asset Protection Advise. Business structure and asset protection are crucial for a business venture. Here, at Gateville Law Firm, we guide customers on how to choose the correct business structure and how to structure their commercial portfolio to reduce their liability risks and concerns.