Holding property in a realty trust vs. an LLC?

4 Replies

Hi All,

My partner and I are looking to get started in REI, primarily in smaller 3-4 unit multi families. We currently own one 3 unit property, and the title is held under our individual names. As we're preparing to expand the portfolio, we've been trying to figure out what is the best way to protect ourselves from a liability perspective, while still taking advantage of as many lending options as possible. We had decided that holding each future property as an LLC would provide us the protection we were looking for, but that also rules out any Fannie/Freddie programs and probably puts us in the commercial loan category or a specialty program.

The question we have is what do folks think is the best way to structure your property holdings in order to best protect yourselves from a liability perspective while not excluding some of the more appealing lending options? Does anybody hold their property in a realty trust where the beneficiary of that trust is an LLC? From the limited information we have, it sounds like that could allow the trust to purchase the property with a Fannie/Freddie program, while still allowing the beneficiary (LLC) to protect the owners/members of the trust.

Curious to hear your thoughts.  Thanks so much for your help.


Did you ever get a response on this? I have the same question.

Unfortunately I did not Ryan.  Since I made this post we've got connected with a good commercial lender and are just planning on holding all our properties in individual LLCs.  I'd still be curious if the realty trust allowed you to acquire investment properties for less than the 20-25% down, but I find that a little hard to believe.  If you find out let me know :)

You might want to ask a good mortgage broker. I asked a similar question to mine the other day and she said we can do a quit claim deed to transfer ownership from LLC to personal and back with no issues. This would allow me to refi or purchase under my name but then hold it under an LLC. She said she has another client that does this all the time.

A mortgage broker is not the person you should be asking for an answer to this question. Liability exposure is a legal question, and you should ask a legal professional for more information.

In terms of whether or not an LLC can be a beneficiary of a land trust; Mostly, yes, but it depends on your state's local rules and their adoption of the Uniform Trust Code, and subsequent treatments in state court. For an explanation of the limitations of Trusts and Corporations in your state, you should speak with a Business Attorney in any of the states you wish to operate, as it is possible that you may not be able to register as a foreign entity in those states that do not recognize the incorporation style.

For example; such a structure would likely be fine in Virginia. (DISCLAIMER: Not legal advice for Virginia, do not act on this information if you live in Virginia. I am not your attorney by providing this information.)

Whether a Trust or a Corporation (or even a partnership) is the best idea depends on a thorough evaluation of a few things; your current assets, your risk aversion, and your business plan. Bring all this information to a local, trusted attorney for more information.

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