Land Trusts

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3 Benefits of a Land Trust

 

Used in conjunction with a Limited Liability Corporation, a Land Trust is one of the most protective vehicles in which to take title to Real Property. Any experienced real estate professional has heard of a trust and its benefits. The land trust is a simple and inexpensive solution for holding legal title to real estate, and is specifically designed and drafted to buy, hold, transfer or finance real estate in a confidential manner.

 

A land trust is essentially a private agreement created through the execution of two documents whereby one party (the ‘trustee’) agrees to hold title to property for the benefit of another party (the ‘beneficiary’). The first document, a Deed in Trust, is a document where real property is conveyed to the name of the Trustee. The second document is the actual Land Trust Agreement. This document allows the Trustee to direct and control the trust pursuant to the terms of the land trust agreement set forth by the Beneficiary.

 

There are many benefits to using a land trust. The land trust has a more desirable and advantageous ownership structure than some of the more familiar forms of real estate ownership. Some of these benefits include:

 

 

PRIVACY

 

Under a land trust agreement, the identity of the legal owner is not disclosed to the public, or any other third party. When the land trust agreement is executed and the trustee deed recorded, the owner of the property is no longer recognized by the public. One of the easiest ways to determine if someone has assets is through public records. For a successful real estate investor this could paint a bulls-eye on their back. A land trust is a powerful privacy tool and ensures that search comes up empty.

 

Remember, a land trust agreement is for privacy. It is not a corporate entity, nor does it share the same liability protections that corporations or limited liability companies enjoy. If an accident occurs in a property, the beneficiary could be held liable. That is why it is best to use a corporate entity in conjunction with a land trust agreement.

 

 

EASE OF TRANSFERABILITY

 

The beneficiary of the land trust can be changed without recording a change in public records. The interests in a land trust are considered personal property, not real property. Transfer of interest in a trust can be done effortlessly with an ‘Assignment of Beneficial Interest.’ Only the trustee needs to sign and execute documents.

 

When investing in real estate, real estate owners must sign all necessary legal and closing documents each time real estate is acquired or sold. Deed taxes are often noted and recorded based on the sales price. This information is then published in the public records. This burden can be eliminated by acquiring and holding real estate in land trusts.

 

 

PROTECTION FROM TITLE CLAIMS AND LIENS

 

If an owner of real estate signs a warranty deed in their personal name, they could be subject to title claims if there is a problem with the property. For example, a lien filed without the property owner’s knowledge could result in liability to the owner, even if title insurance was purchased. A land trust will protect an owner personally against many types of title claims because the claim will be limited to the trust. The trust has no other assets, thus limiting one’s exposure to title claims.

 

Likewise, real estate titled in a trust is not subject to liens against the beneficiary of the trust. For example, if an individual is dealing with a seller in foreclosure, a judgment holder can file a claim against the property in the name of the seller. If the property is titled in a trust, personal judgments or liens of the seller will not attach to the property.

 

Land trusts are a very powerful tool for the savvy real estate investor. A land trust is a revocable, living trust used specifically for holding title to real estate. Each property is titled in a separate trust, affording maximum privacy and protection. These are just three of the many reasons land trusts are gaining popularity in the world of real estate investing.

Written By: Brian Bombinski – Acquisition/Sales agent with Altura Investment Realty

Brian can be reached at 407.625.0751

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Our Very Own Christian Marin Quoted By Bloomberg

 

 

 

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Using Hard Money.

christianOften times, when I talk to a novice investor or even a somewhat experienced investor, I hear, “I want to do a flip or buy a rental but I don’t have enough cash and the bank won’t finance me…”.

The easy solution to this common problem is ‘Hard Money’. The following response I often get is either ‘what is that’ or ‘I heard they charge insane rates and are too expensive’. The truth is, Hard Money is not as bad as many think.

I’ve closed at least 50% of my deals using Hard Money and every one of my buyers who’ve used it is satisfied with the strategy.

Well, what is Hard Money?

Hard Money is also called private money. The funds don’t come from a bank, rather they come from private individuals who lend their money. They don’t have as stringent regulations as banks do so it’s easier to get the loan. The drawback? They charge a higher interest rate than banks do. That’s true. The lenders here in Orlando are charging 12% interest. That’s high, but not anything like the 18% interest homeowners were paying back in the 1980s for their own home!

So how can someone use hard money to help leverage their money?

Let’s analyze the benefits of using Hard Money using a recent deal of mine as an example:

The home was a 4 bedroom, 2 bath home for $155k. The After Repair Value (ARV) was $270k, but it needed $45k in repairs. Now, if you used all cash, you would need $200,000…CASH!!! Not an easy feat.

Now let’s take a look at the deal using hard money:

The hard money lender has the following terms: 3.5% loan origination fee, 12% annual interest, 20% of purchase and rehab cost for down payment and loan up to 65% of the ARV. So let’s break it down with a purchase price of $155k and rehab cost of $45k. The origination fee is $5,600 and the down payment was $40k. So to purchase this home you would need $45,600.

What about holding cost for the loan and closing fees?

This lender only charged $900 in total additional closing fees and holding it for 6 months would be $9,600. So to purchase this home and rehab it with Hard Money, you would only need a total of $56,100. Now, that’s a big difference between sleeping soundly at night and closing a deal by the skin of your teeth, if at all.

Even better than only having to use $56k to purchase and fix the home, is the fact that once it’s SOLD, my investor is looking at a NET profit between $35,000-$40,000. That’s almost a 75% return on his $56k in 6 months or less! That’s compared to buying it allcash which would have resulted in only a 20% return. Talk about leveraging your money!

 

 

Written By:

Christian Marin – Sales/Acquisition Agent at Altura Investment Realty

Christian is a featured blogger on biggerpockets.com and has been quoted by Bloomberg.  He can be reached at 407.221.2981

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