3rd pty Co-Bene. Land Trusts made Simple[er] - Posted by Bill Gatten


#1

Posted by sjm(Steve) on January 26, 1999 at 13:20:17:

Ok Bill,

I know this is making money for you, but I’m having a hard time getting my mind around it. Let’s walk through it with you holding my hand (don’t tell my wife)…

I’m looking at this with the idea of acquiring properties. That said, this is what I understand so far:

  1. Locate seller with property. (Any special conditions? i.e. below market, high equity, etc.)

  2. Convince seller to transfer title to land trust naming you as co-beneficiary. You (the buyer) agree to cover all expenses - PITI, maintenance, water/sewer, etc. (Why would they do this instead of selling to someone else with conventional financing? What’s in it for the seller?)

[You now have a house that you are paying on. What do you do with it while you are waiting for the trust to terminate? Sub lease? L/O?]

  1. The trust terminates and you refinance or sell. (Presumably you refinance at something like 80% of FMV. What if the property hasn’t appreciated 20% during the term of the trust?)

I know that I’m missing something here. Maybe I’m expecting the PAC to do something that it wasn’t intended to do. I’d sure appreciate it if you’d help me to understand how the buyer profits (read $$$$) using this technique.

Steve

Thanks for all your posts, by the way. You’re sharing some great information. I just can’t seem to get it straight in my mind.


#2

3rd pty Co-Bene. Land Trusts made Simple[er] - Posted by Bill Gatten

Posted by Bill Gatten on January 25, 1999 at 16:25:20:

In response to several recent private e-mails from your guys/ladies (and some public posts on King CREO here) re. the 3rd party co-beneficiary land trust transactions that I eat, sleep, drink and live (and shout about) every moment of my perverted little life: let me say it?s kind’a like discovering peanut butter and jelly in a town with no bread. Here?s a more simplistic explanation (still too long though):

The “Too Confusing” response. Sorry… that’s my fault. Ask me what time it is, and I feel compelled to tell you how to build a watch. The concept is not confusing, but it does so many things in so many situations that it is difficult to itemize the benefits and features in a single nutshell. That?s because each application sets up an entirely new group of benefits and features (like fibre glass… it becomes whatever you wrap it around… speaking of REALLY bad analogies).

Most of the “Too Complicated” comments I get are from those among us who have a different (more singular) agenda that I do; and it is, I agree, hard to see the advantages from their vantage point. If your own bent is buying today, then flipping within a week or two, the 3rd Party Co-Beneficiary LT system may not be for you (I really don’t believe that: but let’s give 'em that for now? its an excellent way to flip without a new loan or L/O).

Here’s the folks is for (other than the fast-flipper guys)–the “holders”:

SOMEONE WHO WOULD WANT TO ACQUIRE A SINGLE FAMILY RESIDENTIAL PROPERTY WITHOUT LOAN QUALIFYING AND WITHOUT DOWN PAYMENT: Either to live in themselves, or to hold as a long-term investment (3 to 5 yrs, generally). Personally, I like the concept of "no down, no qualifying, no monthly payment SFR income property buying? (i.e., whatever my closing costs may be, I get it all back when my resident co-beneficiary is located).

By placing the property into a title-holding trust, and acquiring Beneficiary Interest in the trust, rather than title to the property, I needn?t convince the seller that the Due-on-Sale Violation is innocuous (a bunny in a wart hog suit, so to speak). And I don’t have to worry about his/her present or future credit problems, marital problems or tax problems: because property in a co-beneficiary held land trust is shielded from liens by creditors? and the IRS. Likewise, for the same reason, the seller needn?t worry about the ghosts in my own legal or financial closet either. Nor does he/she have to grant me (someone they don’t know from a sack of cold weenies) the title, or take any chances with me. Under the arrangement, if I don’t pay, or don’t take care of the property, the trust terminates (with due process, of course) and reverts to their exclusive benefit.

OR… A SELLER WHO IS WILLING TO ?CARRY? FOR FEW YEARS, BUT WHO MAY BE AFRAID OF TURNING THE TITLE OVER TO A STRANGER WHO COULD GET IT TIED UP IN THEIR OWN LEGAL MESSES… and whom, perhaps, is afraid of the “dreaded Due-on-Sale Clause.” Or whom might just be afraid of getting smacked with Capital Gains right now? or who would like to try the buyer on for-size for a while, before involving the title.

OR… A BUYER WHO JUST NEEDS A YEAR OR TWO TO GET THEIR DOWN PAYMENT AND CREDIT TOGETHER, but who chooses not to forgo any of the benefits of homeownership while they wait (i.e., tax W/O, equity build-up, etc.). A virtual “BUY-NOW AND FINANCE-LATER” kind of a deal.

OR… AN SFR (SING. FAM. RES.) LANLORD WHO IS LOOKING FOR A (SAFE AND EFFECTIVE) WAY TO INCREASE RENTS BY 125%, 150% OR SO, WHILE SIMULTANEOUSLY ELIMINATING ALL NEGATIVE CASH FLOW, MAINTANCE COSTS, MANAGEMENT COSTS AND VACANCIES (by trading tax-deductions and/or Equity Build-up for services and “MO? MONEY”)

OR… A CREATIVE FINANCIER WHO WOULD JUST LIKE A GOOD, SAFE, LEGAL, ETHICAL WAY TO ACCOMPLISH THE OBJECTIVES OF A LAND SALE CONTRACT, EQUITY, SHARE, AITD (WRAP) LEASE/PURCHASE OPTION, ETC. holding for a few years, while the property accumulates Principal Reduction and Appreciation… while someone else makes all the payments and covers all the costs (in exchange for a share in income tax benefits and Profit Potential).

If you have questions, reservation, concerns, doubts, “yeah buts,” challenges, “go soak your head’s,” etc., please let me know (but be nice).

In the beginning, my philosophy was, “Don’t shout and wave it about, or everyone else will want one”; however, now I’m thinking, “Give it away… if it loves me it’ll come back with friends and make my house payment.”

Bill


#3

Re: 3rd pty Co-Bene. Land Trusts made Simple[er] - Posted by Jen NE

Posted by Jen NE on January 27, 1999 at 17:02:39:

Bill, are you going to be attending the Dallas convention?