Accountant · MN · Member since 2008 · 142 posts · 25 votes
Me and one other person will be purchasing an investment property and are not exaclty sure how to properly set up our land trust(s).
This is how I understand it to work:
First we set up a Land Trust (one for each of us), naming a Trustee, maybe 1st Family Trust and 2nd Family Trust - or some other name as long as it does not include our personal names. Then we buy and sell the real estate through the trusts. Finally, we set up an LLC. The beneficiary of all the trusts is the LLC, (which I we each own 50/50) so we have one bank\ account in the name of the LLC and the LLC files it's own tax return, generates a schedule k-1 for our personal returns.
Accountant · MN · Member since 2008 · 142 posts · 25 votes
18y
Does anybody here actually use land trusts or any other type of revocable trust?
I have read a lot on this forum about LLC's. But in practice I find them almost useless as a stand-alone entity for residential real estate. You cannot get a loan in the LLC's name without an extra 200bps. And a quitclaim may trigger "due on sale" caluse. Even if you do get the deed transferred without the lender knowing or caring - the liabilty protection is questionable.
Anyone have any thoughts on this or how to use trusts for rez RE purposes?
Accountant · MN · Member since 2008 · 142 posts · 25 votes
18y
Hey Randy,
Thanks for the reply. So if you ever buy a property with a business partner do you set up two differnet trusts and purchase a property jointly with the two trusts or do you purchase one property with one trust and you and your partner share benificiary interests?
Also, do you use an LLC as a trustee? Benificiary?
Any info you can give me will be greatly apreciated. Me and friend are just starting out a and we want to do it right.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
18y
How are you finding LLC's usless as a stand-alone entity for holding RE?
You can get a loan with an LLC, of course, you need to personally guarantee the loan, unless your entity has built a credit history/worthiness. Quitclaiming the property over to your entity in which you own does not trigger or violate the due on sales clause. Where are you getting your information from? I have personally quitclaimed and have personal knowledge of over 25 other RE investors who do this each and every year. As long as the lender sees that the entity is owned by you, it is not considered transfer of ownership. And finally, liablity protection starts with insurance, continues with you running a responsible business (do not act negligent), and the LLC is another layer of added protection. There is no question to that.
Accountant · MN · Member since 2008 · 142 posts · 25 votes
18y
I have found that the lenders here (MN) are not willing to lend anymore to an LLC even with persoanl guarantees. I have heard that this was the norm a couple years ago but I have spoken with 5 or more lenders who refuse to do them in the name of an LLC unless you pay an extra 200bps.
I am getting my info from two different real estate lawyers. As far as quitclaiming the deed - if the lenders know about it you are at risk of the due on sale clause. I am sure not every lender would do this however I do not think it is worth the risk. And if you do not actually transfer ownership the liability protection is in question.
I started out thinking LLCs were the way to go. But after speaking with lenders and lawyers I have found that this cannot be done, at least in MN.
Real Estate Investor · Rochester, NY · Member since 2008 · 193 posts · 46 votes
18y
Just about every investor in this area either has or still is purchasing a property in their name, and then quit claiming the deed to the LLC. None of them have ever triggered the Due On Sale clause.
As nationwidepi stated, the LLC is just one layer of protection. And the fact that you said there is no protection from it means that you do not really understand what an LLC is is how it is used.
To answer your question, I have not done much with land trusts, but am going to a course in a few weeks that deals with them. I believe you can use one trust, since the beneficiary/trustee if the LLC (which you both have a 50/50 interest). This sounds like a good way to go.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
18y
slimmatic,
I agree with you. RandyH has proven to be very knowledgable in the field of Land Trusts and has a wonderful progam to teach investors how and why to use them.
He will be a guest speaker on my radio show tomorrow at 11 am Pacific time and can be heard via streaming live on the internet at www.hometownstation.com The show is called "Creating Wealth Through Real Estate" and Randy will be teaching our listeners about Land Trusts for Free. Check it out to gain added knowledge on the subject from someone who I consider to be the most knowledgable pro on the subject.
If anyone misses the show, you can access via a recorded podcast on the same website mentioned above.