Posted by marla on May 17, 2000 at 13:11:18:
Bill, thanks so much! Just what I was looking for! I’m eager to try this.
Best Rgds,
Marla
Land Trust Question - Posted by Sal S
Posted by Sal S on May 12, 2000 at 12:23:02:
Dear Readers,
I have read LeGrands material and I do understand what a Land Truist is. My question is this.
Do you buy the house first and then create the Land Trust or is creating the land trust the purchase agreement in itself?
Do you use two seperate documents, or is everything covered in the trust agreement? Like (Purchase Agreement) (Trust Agreement). Please clear this issue if you would
be so kind.
Thank You in advance,
Sal
Re: Land Trust Question - Posted by Jim IL
Posted by Jim IL on May 12, 2000 at 16:43:16:
Sal,
As Stacy pointed out, many investors do these differently as far as the actual closing.
Some use title companies and have a formal closing, others like myself just have the sellers fill out some paperwork and the deal is done.
(I know, sounds too simple, and there are details that NEED to be covered, but not here.).
So, when I get a seller to give me the deed, I have a package of paperwork that is completed by the seller and myself.
In it I have the following forms.
- Purchase and sale agreement. (this spells out the terms and puts in writing that the seller agrees to what we are doing.)
- Warranty deed to Trustee (places the title into the trust)
- Trust agreement. (spell out the duties of the trustee and names the seller as beneficial interest…for now.)
- Assignment of beneficial interest. (this is where the seller is giving me the trust. I now own it and the trust owns the home.)
- A disclosure form that the sellers signs and releases me from liability, and explains what we are doing. They acknowlegde the fact that the loan stays in there name etc.)
- Letters to the insurance agent for the homes policy changing it to a landlord policy and naming the trusteee as the loss payee. (this is singed by the seller.)
- A letter to the lender telling them the home is being placed into a trust, who the trustee is, and where to mail any future correspondence and billings regarding the home and loan.
- A Release of info authorization form with the sellers names, and soc numbers on it. (this allows me to call the lender in the future and get info. Even though my trustee info was sent to the lender, often customer service phone reps don’t have that info, so this helps expedite this.
- A limited power of attny which allows me to collect incurance proceeds and cahs the check when it comes. (even though the trustee was name as loss payee, I still want to be able to cash the check if the insurance company issues the check wrong.)
And that is all.
I do my own title searches, and make sure we have clear title. sometimes, when I feel so inclined, I will pay for a title search to be donw and get title insurance, just in case, but not usually.
I do this type of deal when the seller is ready to be out TODAY and just be done with it.
I carry these packages in my car in a briefcase and ready to go.
And that is basically how I buy “subjec to”.
As you leave the sellers, you will have all these docs signed, and notarized, as well as any correspondence or payment books/statements the seller has.
And of course, they keys.
That is it, HTH,
Jim IL
Re: Land Trust Question - Posted by Bill
Posted by Bill on May 12, 2000 at 12:45:01:
the BEST time to establish a land trust may be at the time you acquire an interest from the existing owner, if appropriate… meaning the seller agrees to stay on the loan… and provide “seller financing” within a land trust. The title is placed into the land trust, without ever going into YOUR name. Owner assign YOU his beneficiary interest-not the legal title.
Full details at www.landtrust.com
Benfits:
-
was never a “sale” in the normal sense of the word. Argue tax benefits to seller, along with maybe a percentage of future resale “profit”.
-
Private transaction between you and the seller/beneficiary- personal property only.
-
If you 'flip" the property, or sell it soon after acquiring the beneficiary interest, the buye’s lender will be less concerned about the well publicized “flipping” issue. Seasoning issue is something many lenders are concerned about.
-
the “price” you paid is never a public record…so buyer can’t try to use that as a negotiating tool, and the appraiser can’t ding you either!
Bill
Re: Land Trust Question - Posted by Stacy (AZ)
Posted by Stacy (AZ) on May 12, 2000 at 12:30:09:
Sal-
The Land Trust agreement stands on it’s own…it is not a Purchase Agreement. Use a purchase agreement first, to document your purchase. After you have a signed purchase agreement, the Land Contract, Deed to Trustee, etc. are completed later when you close the deal.
Stacy
Re: Land Trust Question - Posted by marla (SDCA)
Posted by marla (SDCA) on May 12, 2000 at 13:15:11:
I’ve been thinking of working something like this with my rental, but am wondering if/how I can “sell” the resident beneficiary a part of the future resale profit and still do a 1031 Exchange at the end of the trust agreement. Is that part just handled by the QI in the same way that they’d pay off the current mortgage?
TIA,
Marla
Re: Oops. - Posted by Stacy (AZ)
Posted by Stacy (AZ) on May 12, 2000 at 15:25:13:
My last sentence should have read-
After you have a signed purchase agreement, the Land TRUST, Deed to Trustee, etc. are completed later when you close the deal.
I also should mention that I always close through a title company and buy title insurance. There are others that don’t, but instead “self-close” their deals. Many of these don’t even get a purchase agreement signed, but just have the seller sign all the paperwork (trust agreement, deeds, disclosures) at the time of sale. Too much risk for me. For example, my title company found a few hidden surprises in one of my current deals, that I would not have been able to find on my own.
Stacy
I should have been clearer … - Posted by marla (SDCA)
Posted by marla (SDCA) on May 12, 2000 at 13:24:23:
I don’t expect the RB to purchase the rental at the end of the trust agreement, because most of the value of the property’s in the land, making it more likely to be purchased by a developer. I’d just like to see if I could offer the current tenant the opportunity to take over the expenses in exchange for the tax right-offs. I may need to sweeten the deal by offering part of the future sales profits, but want to be sure that wouldn’t preclude my doing a 1031 exchange when I finally sell the property.
TIA for any suggestions.
Marla
Re: I should have been clearer … - Posted by Bill
Posted by Bill on May 12, 2000 at 16:50:39:
A sale has not occured when you assign a beneficial interest to the RB. No taxable transaction. At the time the Trust property is sold, yiou are entitled to the trust proceeds. As I understand it, if you set this up properly, you may establish an account with a qualified intermediary to accomodate a tax delayed exchange. The sales proceeds go to the accomodator and then is used to acquire the desired property and then deeded to you to complete the exchange.
I could be wrong, but I am pretty sure the land trust does not take away your right to a tax deferred (delayed) exchange, assuming you follow the regulations.
Bill
Mara, the other “Bill” (the 3rd one) is right about 1031 - Posted by Bill Gatten
Posted by Bill Gatten on May 13, 2000 at 13:39:18:
Marla,
IRC Rev. Rul. 92-105 confirms your right as a beneficiary of a land trust (full or partial)–even though what you own is Personatly–to exchange it for Realty through a 1031 Like-Kind Tax-Deferred Exchange.
For your particular objectives, you would: 1) create your land trust; 2) assign a beneficiary interest to your tenant, then 3) have the tenant-beneficiary lease from the trust instead of from you. By doing it this way, you now have the right and ability to give the tenant anything you want in exchange for higher payments, and performance obligations: e.g., some, all, or none of the tax writeoff; some, all or none or the appreciation potential; some, all, or none of the equity build-up in the pay-down of the underlying financing; some, all or none of the Power of Direction (voting rights) in the trust; some, all or none of the use, occupany and possession, water rights, mineral rights, etc.
In this kind of arrangement, you can strengthen your position ever further (“bullet proof it,” as it were) by appointing (nominating) a 3rd party corporate trustee, and by holding your beneficiary interest in a two-party LLC (which could be set up for about $100 or less).
Bill Gatten
Re: I should have been clearer … - Posted by marla (SDCA)
Posted by marla (SDCA) on May 12, 2000 at 18:59:53:
Thanks Bill.
I could be wrong, but I am pretty sure the land trust does not take away your right to a tax
deferred (delayed) exchange, assuming you follow the regulations.##
That confirms what I’d understood. However, if I agree to give the RB a piece of the profits when I sell, can his payoff be handled by the QI? IOW, is it treated like any other lein on the property? Or should I count on paying the RB from cash reserves (or interest in another property ,etc.)?
TIA,
Marla
Re: Mara, the other “Bill” (the 3rd one) is right about 1031 - Posted by marla
Posted by marla on May 16, 2000 at 11:42:04:
Thanks a bunch, Bill!
I recall saving the text of a “script” you posted awhile back for approaching tenant with a PACTrust deal, but I’ve been unable to find it on my system. If you could repost that, I’d really appreciate it.
I’d like to be able to offer the tenant some incentive for paying more than the mortgage/taxes/insurance but don’t think I should tie it to the appreciation of the property … the recent appraisal was for the SFR, but there’s considerably more value in the developable two acres it’s on. Would it be better to just offer to give them a fixed return, e.g. … for $X/mo extra, I give $X+$Y at the end of the trust period?
Regarding the trust period … does it need to be a specific length of time (within three years) or can it be “X years and Y months or until the property is sold, whichever come first”? (I’m just about to put the property on the market, but anticipate that even if under contract right away, it’ll take nearly a year to close escrow with a developer. I’ve recently had some big expenses with the house and, while I’m trying to sell it, I’d like to be relieved of the negative cashflow the propety now has. I know my tenant makes has a good salary and has little to offset it for tax purposes, so I thought this could be a win for us both.)
Thanks for your help! I look forward to attending your July workshop in San Diego.
Rgds,
Marla
Re: Marla’s question re. making more, and giving away less - Posted by Bill Gatten
Posted by Bill Gatten on May 17, 2000 at 12:29:05:
Marla,
The script is:
"Yes I have this property over there in Xxxxxx, which is worth about $xxx.00, and if you can afford the payments and closing costs…I’ll just GIVE it to you. (pause) The only thing I want out of it is to have your sell it or refinance it in a few years, and if there’s been appreciation by that time, I’d like to split it with you (or, if your don’t want to share profits, you say “…You could buy it at that time”).
To enhance your income and eliminate negatives (as per your question), here’s what you have to offer them. And remember that each component carries its own ?additional? monthly value in addition to the value of just ?rent.?
- Use, occupancy and possession (say, $1,000 per month) – Rent
- The right to sublease for a profit (another $50 per month)
- The full tax write-off (100 percent) on your mortgage loan payments and property taxes (another $250 per month)
- Equity buildup from principal reduction – some or all (another $100.00 per month)
- Appreciation potential – some or all (another $150.00 per month)
- Water rights, mineral rights, quite enjoyment, etc (??).
- The right to buy now and finance later ($50.00 per month)
- The right to purchase at some point in the future, but with tax benefits now, and all the other benefits of ownership now…and continuing until the purchase takes place (included in above)
Now you?re collecting $1,600 instead of $1,000: but then you ALSO add to that the absence of your maintenance budget (e.g., $100 per month) and you vacancy vactor (e.g., $200 per month). At this point, you?ve virtually doubled your rents.
Now?given good appreciation and the principal reduction of a reasonably aged loan, your tenant will have lived in the property almost rent-free by the time the property sells (assuming he realizes the profit himself?if you don?t want him to have the Appreciation?you just don?t charge for it).
Remember, Marla, that in the arrangement you?re considering, you can divide (or keep) any component of Fee Simple Real Estate Ownership in any way, and any proportion, you might wish to?if you?re dealing with beneficiary interest in a land trust versus the property?s title.
?Hope this helps, Marla. The figurte I used above are reasonable but tough to sell…unless you have someone using a caluclator to figure ut his bests interests. Personally, I’m always happy to just get a postive cash flow and freedoom from management, maintenance and vacancies.
Bill Gatten