Is it true I can get a low rate mortgage with a LLC/trust combo?

Question

Hi - I have saved up some cash aside and I am looking to break through this year in rental property investing for long term buy and hold for cash flow. My main aim is to have a proper legal structure for asset protection(from tenant lawsuits etc) in place for my rental investments knowing well that it comes with higher mortgage rates if I buy properties under a legal entity like an LLC.

But while I was shopping around for lawyers, one lawyer from Anderson Advisors said that I can get a low rate conventional mortgage(like i was buying a second home or an investment property) from the lenders with a LLC instead of a commercial loan if I set up a land trust with the LLC as a beneficiary and telling the banks that I am putting the property in a land trust for Estate Planning purposes right off the bat.

I wanted to validate this if this is indeed true and if anyone has successfully done this before because I searched the forums and I could not find anything like this.

Really appreciate any input on it.

Mike S. · Answer

I don't know why the grantor would be responsible for taxes. The beneficiary should be as it is the one receiving the benefit. It is not like a living trust, where the grantor and beneficiary are the same while you are alive.

My understanding is you can either use the Land Trust or the beneficiary as the entity receiving the rent and paying the taxes. For the insurance however, you would want the Land Trust as named insured and the LLC as additional insured.

The only interest to receive the rent in the land trust would be to keep the anonymity with the payer. In my case however, all my rents are collected by a separate management company that is the one on the lease and then the management company pays my LLCs.

Mike S. · Answer

You will buy the property under your own name. After closing you will deed the property to a land trust where you are still the beneficiary. The due on sale clause won't be triggered thanks to the Garn St Germain act. You will then assign the beneficial interest to your LLC.

I have done it before without any issue.

Vidit S. · Answer

@Mike S. So I am going this route and getting a land trust with a LLC as a beneficiary for asset protection in order to get a rental property.  I have been reading some tax laws and if I understand correctly, the grantor will be responsible to pay tax on the income derived from the assets (rental property) in the trust. If that's the case and something were to happen, I think a strong case can be made to pierce the corporate veil, because it appears that the LLC is being used merely as a shell company to shield me from personal liability. The LLC never generates any income, its only role is being listed as the beneficiary of trust that we create. Is that correct? Or am I understanding it wrong and the Grantor is not liable for taxes?

Mike S. · Answer

watch all the videos on the youtube channel from Clint Coons, he has very good instructional videos on all these concepts and his suggestions are in line with what I eventually did after seeking multiple advices. It is not the only way to do it, but it is the one that made more sense to my situation.

Vidit S. · Answer

@Mike S. Thanks Mike, after days of research and getting all sorts of opinions and different solutions from different attorneys and CPAs, I am also leaning towards the structure you have for asset protection.

Mike S. · Answer

I have a single member LLC in the same state as each property (to be able to respond/initiate any legal action in that State like an eviction). All these single member LLCs are owned by a WY multi-member LLC. The WY LLC is giving me the charging order protection.

Vidit S. · Answer

Thanks @Mike S.   Little digression - Is your LLC in Florida a single member or multi-member because as I understand single member LLC in Florida don't provide outside protection

Vidit S. · Answer

Been reading up on it a bit and found this article very useful --> https://andersonadvisors.com/wp-content/uploads/20...

But would love to know if someone has actually done it.

Is it true I can get a low rate mortgage with a LLC/trust combo?

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