If you are what I call a “technical” investor, you can feel good about yourself because you are among an elite group. What is a technical investor? A technical investor, or more specifically–a real estate technician, is an investor who has the knowledge and skills to understand the legal side of real estate documents and conveyancing. In fact, a real estate technician has the skill set of being able to handle a transaction starting with drafting his or her contracts to performing title searches, legal research, drafting deeds, and even handling their own closing of a deal.
Sounds a little intimidating doesn't it? Yes and no. Like any other skill you learn this in parts and not all at once. First you get comfortable with the legal words and phrases, then you learn about the content and structure of the documents. Next, you learn the application of these documents and when it is appropriate to use them. Then, you watch others use these documents (at your closings with lawyers and or title companies). You further educate yourself by asking lots and lots of questions to the folks using this information–soaking up and taking notes of what they are telling you).
Now you're getting closer to handling some of this stuff yourself without “training wheels” so to speak. You'll probably start out drafting some simple documents like assignment contracts. An assignment contract is a contract that conveys (sells/transfers) ownership in some contractual right like an agreement of sale, lease, note, etc. Keep in mind, virtually any contract can be sold unless assignment is forbidden within that contract–although there are a few exceptions too technical to explain here). Next, you'll move into some slightly more advanced documents like Options to Buy or Deeds.
Let's take just a quick minute for a mini-lesson on transfer documents. This is basic but worth covering. There are 4 primary transfer/conveying contracts in the world:
1. Bill of Sale – personal property is sold with a bill of sale
2. Assignment Contract – Contractual rights are transferred with this document
3. Deeds – Real estate is transferred with this document
4. Leases and Licenses – transfer temporary use of property or intellectual property.
People often look at drafting a deed as if it is some mystical document that none should ever dare draft unless they have spent thousands of hours in law school. Well, I'm going to break the news to you: a lawyer probably did not (almost never) draft your deed–his or her secretary or paralegal did. Better yet, the lawyer's secretary used legal software, which drafted the deed–they just filled in the blanks!
Okay, okay, I can hear folks saying it now “He is telling me not to use title companies or lawyers in my real estate deals.” If that's how you interpret what I'm explaining, you are wrong. I'm simply saying you can take a whole lot more control of your own deals, especially distressed deals, if you know the technical side of this business. Too many investors are way too ignorant of the legal and contractual end of this business.
Lawyers and title companies can be a great part of your team, but remember, they are extremely risk adverse by the very definition of the service they offer (insurance and advice). Many times, I don't know–is NO.
By learning to be a technical investor you have a savings in legal fees (by doing much of your own legal research and by having a knowledge of the law as a business tool), and you have the intellectual tools to do a deal all by yourself in those unique occasions when a deal has to be closed yesterday.
Back to our discussion on deeds. In short, a deed is an amazingly simple, yet, powerful document. It really isn't that difficult. You need a grantor/seller, grantee/buyer, subject property, legal description (obtained typically from prior deeds), consideration (something paid), and perhaps most important– a granting clause (and don't forget a notarized signature of the seller).
Now for another mini-lesson. Legal words confuse you? While a legal dictionary is worth it's weight in gold, you can get by quite well with a good quality standard dictionary. Most legal words are explained in regular dictionaries. Just look down in the definition where it says Law: then it will give you the legal meaning. If you do not understand the words in the explanation then proceed to look those words up also. Like untying a knotted up rope you will eventually “translate” the legalese.
In closing allow me one case in point. Over the years I have closed several of my own deals right in the notary's office without lawyers or title companies. These were low dollars down type deals where I was typically taking title “subject-to” existing liens. My risk was low and time was of the essence, so I did the deals with lighting speed in as little as one day!
This stuff is very powerful. Get educated. Do not hesitate to get legal counsel or advice from your title company or lawyer whenever you're in doubt or risking serious money. I can assure you this is worth learning if you want to become an elite investor.