Title Company Mistakes
If you are a real estate investor, a Realtor, a loan officer, or a lawyer, then you already know that many title companies and the IRS make mistakes on a frequent basis. Most of these mistakes may never even cross your mind and they could end up costing you a great deal of money. In fact, there are a lot of people that find out they owe money to the IRS and they did not know even it and this is not the ideal situation for anyone to be in.
Are you the type of person that reads every single little detail when it comes to any deals that you do? If you are, that is a good thing, if you are not, make sure you have a really good attorney and CPA that does. It will certainly decrease the likelihood of any problems arising if you do. It is always good to have a second set of eyes on any contract or paperwork. But, you need to know that there are still times when you could end up in a situation where you owe the IRS money. Mistakes happen when it comes to paperwork and you should never assume that everything is going to be 100% perfect.
If something is not filed properly you could end up with a tax problem. In fact, if social security numbers are incorrect or names are switched, investors could be listed as receiving a great deal of money that they did not receive. Or, it could show that you did not pay off a mortgage that you really did pay off. A bad title company or attorney could cause a lot of problems for you when it comes to buying and selling real estate.
School of Hard Knocks – The Title Company and Attorney Missed It!
We had a real estate transaction where we purchasing a REO property and at closing we saw that the property address did not match the legal description! If we would have closed on the property not catching that, we would have actually purchased the house next door which was half the size and much less desirable. What’s even worse is that we probably would have fixed up the larger house and when we went to sell, we would have found out we fixed up the wrong house! That would have been a $300,000 learning experience but luckily we caught it at closing ourselves because we double checked the paperwork. Our attorney or title company did not catch this mistake so we obviously never did business with either ever again! That is why dotting your I’s and crossing your T’s is extremely important!
Big Brother is Watching!
You never know when you may be audited. Because of that, anyone that is investing in real estate should make sure that they always have all of their paperwork ready to go. It is a good idea to keep very detailed records in a program like Quickbooks and always keep all receipts! The IRS is not going to take your word on anything and they will want to be able to see everything as they want proof. If you are writing off mileage, it is good to keep a logbook in the vehicle so you can write down the odometer before you leave and the purpose of your travels. If you are having lunch or dinner with a client or potential investor write down their name and the purpose of the meeting on the back side of the receipt so you have good records.
In Summary
Real estate investing can be very profitable but if you are not meticulous in keeping good records and reading the details, it can come back to haunt you. Just try have good record keeping at the top of your list, always do your due diligence, and read the fine print on every transaction. Always have a god title company and attorney to double check everything as well. Doing so will ensure that you are able to you are able to write off all business expenses properly and you do business the right way without severe tax consequences down the road.