Do The People Behind Your Investments Truly Have Your Back?

If you’re considering investing in real estate, you’re not alone. Investors from northern cities are looking for relief from harsh winters, hoping to buy a vacation home that can be turned into a rental property for the rest of the year. Locals may be looking into real estate as a way to generate income year-round or just to diversify their portfolios. Unfortunately, both locals and out-of-towners are at risk of making bad investments simply because they don’t have someone on their team looking out for their best interests.

Case #1: Know Your Motivation Before You Make a Move

One of my clients recently called me to say she wanted to sell off a large portion of her investment properties. I was familiar with the properties because I had sorted out the insurance on them about a year earlier when I discovered that the insured value of the property was much lower than it should have been. Now, when it comes to protecting real estate, insurance is the cheapest money you can buy—but she only had coverage for about 30% of the full value of the property. If a hurricane had struck the coast that year, my client would have lost $10M overnight. I referred her to an insurer who immediately got the property properly analyzed and covered under a comprehensive plan.

Since then, Florida property prices have skyrocketed. The COVID-19 pandemic caused a real estate craze, in some cases doubling the sales price on listed properties. My client decided that instead of managing the properties herself—requiring upkeep, maintenance, property management, and dealing with the HOA—she would sell them off and focus on other investments. So, I did an analysis of the properties she was interested in putting on the market.

The properties had good locations, but they were in less than stellar condition. One had sinkhole issues, one had a dilapidated roof, and one had a decaying playground that was just waiting to cause injuries. Knowing my client, I wondered why she bought these properties at such a high price when they were in such bad shape. As part of sorting out the insurance issues, I researched the transaction history for the properties. One transaction stood out because it raised even more red flags: the list price was $350K, and yet my client paid $400K—and the listing was pulled before my client paid $50,000 over the asking price. And, this transaction occurred a few years ago.

I called to ask her about it, and after a little hemming and hawing, I understood the full story. My client had entrusted her husband to act on her behalf while she was out of town at a conference. Her husband had been the one who bought the property, sight unseen, on the recommendation of a real estate agent. This real estate agent, it became clear, was not on the level. When the agent spoke with my client’s husband, the agent made it sound as if my client knew all about the purchase—they’d been discussing potential deals, he said, and she trusted him completely—but they’d have to act fast, or someone else would scoop the property up. When my client returned, she was upset that her husband had made the deal without her, but the property was in the right area, so she decided to make the best of it.

To further complicate matters, my client was doing highly profitable business with the agent’s broker, a reputable land developer. My client had no problems with the broker, but she was unwilling to work with the broker’s sales agent in the future. I contacted the broker on my client’s behalf, informing him of the situation. While the further employment of the agent was left to the broker’s discretion, I did require him to instruct the offending agent never to call, email, text, or otherwise contact my client or my client’s husband ever again. If my client heard from the agent again, I would not hesitate to get a restraining order and advise her on reputable contractors for further business ventures.

I then met with my client’s business team, who thanked me profusely for bringing the real estate agent’s behavior to their attention. One expressed frustration, wondering how it took so long to discover that the agent wasn’t on the level. The simple answer: much like the insurance agent doing business with the company, the real estate agent was working for himself, not my client.

Case #2: Is Anyone Watching the Person Watching the Money?

Anyone with a high net worth knows that the biggest threat to wealth is the people you trust to manage it. Wealth is often lost bit by bit to people who want a cut, even if those people are ostensibly working for you. For example, my grandparents were raised during the Great Depression and had very little throughout most of their lives. But through careful management, they were able to build a nest egg of a little over $300,000. Eager to protect their life savings, they received a recommendation to a financial advisor who supposedly put their savings into various low-risk investments. Later that year, the advisor came to their home and asked my grandmother to sign a form that he claimed would allow the couple to write checks against the investment accounts—but what it actually did was allow the advisor to invest on margin.

Needless to say, margin trading is NOT ideal for the elderly to preserve their principal. The investor should have known this wasn’t a suitable plan, but he kept trading on margin to buy mediocre (sometimes worthless) investments so he could charge broker fees. When this came to my attention, I brought an arbitration claim against the broker and the brokerage house, fully willing to go for their trading license if that’s what it took to protect my grandparents’ investments. We settled and got all of my grandparents’ money back, and the broker has a strike on his professional trading record that, as part of our deal, can never be removed.

Case #3: Even Attorneys Need the Right Attorney

When I say that everyone running a business should have a lawyer on their side, I mean everyone—even those who know the law inside and out. One of my clients—a hard-nosed, tough-as-nails divorce lawyer—came in to revise the terms of his business succession and update his estate plan. This is a guy who goes to bat for his clients every day, fighting their emotionally turbulent battles over money and custody and making sure their needs are met for the rest of their lives. He knows he can draw up his own documents, but he’s worried about making the best choices when it comes to his own family. He needs someone who can be the person trusted to discuss the difficult issues for him the way he is for his clients, telling him what needs to be done even when he doesn’t want to hear it.

Don’t Wait to Be Hit By Another Unpleasant Surprise

You’ve got enough people working for you—you need someone who’s actually looking out for you. Our Florida business law team is standing by to provide guidance during disputes, investigate matters of due diligence or conflict of interest, and ensure that you are protected through each new challenge that comes your way. Call Yolofsky Law today or contact us online to get answers to your questions.