Land Trust Series Part IV: The Negatives

I am the biggest advocate for land trusts you will ever meet. I have successfully used them in so many scenarios that have made deals, saved deals and even killed deals (on purpose) that there is no way anyone is going to successfully argue with me that land trusts are not one of the best tools available for real estate investors. Hands Down.

With that said, anyone that knows me will, I hope, say that I am a pretty straight shooter. So, today, I am going to admit that there are two sides to every coin and will discuss a few of the negatives.

First, hazard insurance is more expensive when property is held in a land trust. I have had some clients tell me the price difference was enough to steer them away from land trusts completely while others have said it wasn't that big of an issue. I believe it all depends on your agent. Like everyone else on your team, make sure your insurance agent is investor friendly.

Second, you must have an attorney to file an eviction which will make your evictions more costly. A pro se action is when someone represents themselves in a case. This is fine. However, in order to file a case on behalf of anyone other than yourself you must be a licensed attorney. Technically, when a property is held in a land trust, the trustee holds title to the property. Since the trustee is acting on behalf of the trust and its beneficiary the trustee must be a licensed attorney to file an eviction. Same would be true if you just held title under a corporate entity alone. An LLC cannot represent itself; therefore, an attorney is required to represent that corporate entity. Of course, I have seen plenty of people file an eviction on behalf of their LLC. I think is just depends on your County and the Judge as to whether or not they push the issue and require representation.

This was a big one a few months ago - you can’t buy REO’s or short sales in a land trust. I should have put this under my last blog entry which was the True and False one. This is not true anymore. There was a time when some banks were not accepting offers if the buyer was a land trust or corporate entity because they didn't like the idea of “flippers” buying their properties and making a big profit if they were slashing their profits with the short sale. This practice has almost completely disappeared. I actually don’t even remember the last time I saw an offer rejected because a land trust was the buyer, but there may be a few banks that are scragglers. Go ahead and make the offers using a land trust. You can then have a lot of freedom in structuring your sale.

Lastly, managing your property is a pain if you are not the trustee of your own land trust. This is true only if you don’t have a good trustee that knows what they are doing. Since the trustee holds title to the property, everything needs to go through that trustee before anything can happen with the property. The trustee need to sign permits, contracts, leases, field offers to purchase, etc. A good trustee will provide you with documentation needed so that you don’t have to call their office every time you need something to happen with your property. If I know the investment strategy or the long term goal of the client I can provide the client a form that will allow them to do anything needed other than sign closing documents or documents changing title. It makes my life and the clients’ life a lot easier.

These are the main complaints I hear from clients or potential clients and I can completely fix them or at least make them less of a head ache for my clients. So see. Even the negatives aren’t that bad.