Land trust, cap. gains, and a HUGE deal (for me) - Posted by Ben (FL)

Real Estate Investing
1

Posted by Bill Gatten on November 06, 2000 at 21:17:10:

I will disagree in part with the esteemed Jim Piper here (seldom need to do that, but…sometimes…).

If you approach this seller with the safety and beneficial tax consequences of holding ownership in a land trust in his name with you as a co-beneficiary (the PACTrust), he should feel real warm and fuzzy about that. It will, as a matter-of-fact, shield him and the property from any future unforeseen trouble you might get in to (tax liens, creditor judgments, BK’s, divorce actions, getting dead and having the property tied up in your Probate…or his Probate if he gets that way first).

By doing it this way (using the PACTrust), he has a clear shot at your dispossession if you screw up…without any undue concerns about your claiming “equity” (an equity interest) and attempting to thwart or forestall dispossession in favor of a more lengthy judicial foreclosure process, ejectment, quiet title, etc.

Yes. The PACTrust can work wonders for you here.

Re. the request for subordination…forget it. It’ll make you look like a piker. A lender couldn’t loan to you anyway, as you don’t own the property if its in a land trust.

The best idea is for you to get a partner real quick. An ad in the Business Op. section of your newspaper will do it for sure. “$10,000 buys half interest in in 10 houses with $xxx equity and no payments and no expenses…properties valued at $xxx,000. Urgent!”

And what Jim said about the deposits and advance is excellent and astute advice…most of the money you need may already be there.

Bill

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Land trust, cap. gains, and a HUGE deal (for me) - Posted by Ben (FL)

Posted by Ben (FL) on November 04, 2000 at 07:28:43:

OK,

SO I was talking to this seller who wants to retire. He has multiple properties that he wants to sell, in chunks, but he doesn’t want to take a cap. gain hit all in one year, so he tells me he wants to owner finance with little down. I started looking around for the CRE Online candid camera folks.

Well, his idea of “little” down is like $2500 down for a single house, maybe $10,000 down for 10 houses, bundled together. All the properties (houses, duplexes, triplexes) are rented and reportedly in good shape. Since I don’t have any cash, right now, and I know of no one who will lend on a 2nd mortgage (I’ve already tapped out friends and relatives, any suggestions?), here’s what I thought I would pitch to him:

Put whatever properties I decide to buy (maybe all of them, if he likes the idea and of course, provided the cash flow works out) into one or more land trusts. Then he can assign me beneficial interest in the trust(s). I ask him to subordinate so I can get a hard money first mortgage for the down payment.

Now, those of you who know all about land trusts and the UCC-1 financing form and all, please give me suggestions on ways to pitch this idea to a VERY seasoned investor who may look at me like I have shoelaces hanging out of my mouth when I ask him to subordinate.

ALSO, using land trusts, assigning of interests, etc., is there a way for him to either ease, or avoid, his captial gain on these sales if at some point I decide to sell a property or two, later on? I gather he is interested in getting out altogether, so a 1031 exchange is not an option.

Thanks for your help!

3

The PACTrust point of view on this - Posted by Bill Gatten

Posted by Bill Gatten on November 06, 2000 at 21:18:55:

I will disagree in part with the esteemed Jim Piper here (seldom need to do that, but…sometimes…).

If you approach this seller with the safety and beneficial tax consequences of holding ownership in a land trust in his name with you as a co-beneficiary (the PACTrust), he should feel real warm and fuzzy about that. It will, as a matter-of-fact, shield him and the property from any future unforeseen trouble you might get in to (tax liens, creditor judgments, BK’s, divorce actions, getting dead and having the property tied up in your Probate…or his Probate if he gets that way first).

By doing it this way (using the PACTrust), he has a clear shot at your dispossession if you screw up…without any undue concerns about your claiming “equity” (an equity interest) and attempting to thwart or forestall dispossession in favor of a more lengthy judicial foreclosure process, ejectment, quiet title, etc.

Yes. The PACTrust can work wonders for you here.

Re. the request for subordination…forget it. It’ll make you look like a piker. A lender couldn’t loan to you anyway, as you don’t own the property if its in a land trust.

The best idea is for you to get a partner real quick. An ad in the Business Op. section of your newspaper will do it for sure. “$10,000 buys half interest in in 10 houses with $xxx equity and no payments and no expenses…properties valued at $xxx,000. Urgent!”

And what Jim said about the deposits and advance is excellent and astute advice…most of the money you need may already be there.

Bill

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Re: Land trust, cap. gains, and - Posted by dewCO

Posted by dewCO on November 04, 2000 at 20:09:05:

I like JPipers and Marty’s answers. But you know the saying, if this is a deal then you should be able to get a partner if necessary.

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Re: HUGE deal (for me) - Posted by JPiper

Posted by JPiper on November 04, 2000 at 09:35:49:

Can?t help but point out that if the houses are rented, then there is a deposit which should be credited to you at closing. If you closed just after the first of the month, you would be credited with a deposit and the nearly full month of prorated rent. If the rent and deposit are $500 each, that gives you $1K per house. In other words, if you?re buying 10 houses that gives you $10K in credits at closing. Perhaps you should find out more about the rent and deposits?you might find the money is there to close.

More importantly, if I were financing 10 houses, I would think my expectation of $10K down would be quite reasonable. If you came to me with the idea of subordinating to get $10K, I would blow you out of there in a New York second. My own thought would be that if the guy can?t come up with $10K for 10 houses, then he?s not real.

In my mind your land trust idea has nothing to do with whether you have the cash. Two different ideas. The cash upfront will indicate you?re a player. The land trust is a means for holding title and a possible step for asset protection.

Since this guy is seasoned I?m sure he?s well aware of his tax consequences?.and he?s come up with a plan. My focus therefore would be on whether there?s a deal here, and on how to do it?.rather than trying to figure out his taxes for HIM, or worrying about the way I hold the property. If you?re real then I doubt he?s going to have a problem with how you hold title. If you?re not, how you hold title is not going to convince him to do this deal with you.

Just putting myself in his shoes.

JPiper

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Re: Land trust, cap. gains, - Posted by Marty Weisberg

Posted by Marty Weisberg on November 04, 2000 at 08:08:30:

Ben,

How about using the a PACTrust concept and be co-beneficiaries in the trust. You could place the properties into a PACTrust and you be managing beneficiary of the properties (thereby relieving him of all management responsibilities). One of the things that will do is give him the assurance that he can choose when a property is sold to minimize his taxes. The PACTrust could be used to increase the cash flow on the properties (by giving the tenants ownership interests in the trust, thereby deductions)

There are a multitude of benefits in this you and for him.

Marty