Re: need advise - Posted by Bill Gatten
Posted by Bill Gatten on November 12, 1998 at 17:20:58:
As several of the folks here on King CREOL have figured out, I am pretty much a one-horse jockey. I eat, sleep, drink and live land trusts (had two for breakfast this morning).
Just as an alternative idea and a point of interest–think about building the other four units out (or not) and putting the whole group into a title holding land trust. To enhance your income and eliminate costs, you can then sell, say, a 10% beneficiary interest to up to eight individuals or couples looking for the benefits of homeownership (or to four people at 20% each, if you don?t build the other four units). In either event, you keep all of your existing equity and 20% of the future profits and loan principal reduction for yourself (kind’a like an LP).
Now… if each acquisition (of bene. int.) is then tied to a triple net lese arrangement with your trustee, each of the “resident beneficiaries” will have essentially bought a home, replete with all the tax write-off, principal reduction, appreciation, etc. WITHOUT your needing to subdivide or refinance; and without the “buyers” needing to finance, or make any more down payment than you would require.
Furthermore, resident beneficiaries in land trusts pay a LOT more per month than do renters: and they remain fully responsible for 100% of all management, maintenance, repair, upkeep, upkeep, property tax, insurance, etc. You therefore have no management or maintenance duties or costs (unless you want to, and charge extra for them).
Legally speaking, in this kind of arrangement great care must be taken so as not to trigger an IRS characterization as a partnership, corporation or an association (which would be taxed as a corporation). As long as the number of beneficiaries is less than ten, you need not be concerned about Securities and Exchange issues (and an REIT takes 99 or more).
We recently helped a local dentist do this with a ten-unit apartment building here in Ca., which was on the verge of driving him crazy and into bankruptcy. He put four units into the hands of beneficiaries and is still renting out another six.
(Although… I do like Bud B’s idea second best… less esoteric - I also don’t cotton to being a landlord)