Investing in real estate comes with many perks, namely earning a steady income, getting tax benefits, and staying on top of inflation. Managed properly, your real estate investments can become your key to attaining long-term financial security.
However, investing in real estate will not only require you to pick the right property or find responsible tenants; you also have to learn how to manage real estate compliance risks. Being well-prepared for these compliance risks will make it easier for you to manage a successful real estate portfolio and attain assets in different locations.
Consider the following guideposts below as your basis for creating effective compliance programs in the real estate industry.
Enterprise-Level Compliance Program
As a real estate investor, your compliance program should come with appropriate procedures and policies for its own business and employees (if there are any). Ideally, you should acquire professional training that focuses on doing business in real estate locally and internationally.
If you’re planning to invest in the real estate industry and function as a board director, you should fully understand the obligation associated with your position. Moreover, you should be aware of the liability for conduct concerning your investments.
Since investing in the real estate industry provides high rewards, expect that the risks associated with it are also high. This is one of the most obvious reasons why you should educate yourself on real estate compliance requirements and create a customized compliance program.
Pre-Acquisition Due Diligence: Assets
Before you make an investment or acquire any asset, diligence should be conducted on the seller and the asset to assess if there are any issues concerning corrupt conduct on behalf of the seller or the quality and value of the property.
If you’re looking to invest in fully operational and established property, you should exert time and effort to research prior property managers and investors. This is an effective way of knowing if these individuals are involved in any criminal conduct or if prior licenses and contracts with government authorities were properly negotiated or renewed.
Before investing in developing properties or buying any piece of land with the intent of building a property, you need to fully understand the licenses and permits required to construct the properties and how they are obtained. You should also watch out for any red flags that indicate whether the seller has a clean and proper title to the property.
Portfolio Risk Assessment
To ensure that you’ll end up creating and implementing an effective compliance program, you and the developers you’re working with should fully understand the risks. As a real estate investor, it is your responsibility to conduct risk assessment across all of your properties so you can effectively allocate the necessary resources.
The risk assessment should also include the extensiveness of government contracts, an analysis of the location of your assets, and identification of an existing compliance program in place. The more thorough the risk assessment is, the easier it’ll be for you to foresee risks and come up with solutions.
The more you know about the real estate industry, the easier it’ll be for you to foresee and manage risks prevalent in the industry.
