My thoughts on Land Trusts

Recently I was emailed by a up and coming investor and she had the topics of Land trusts on her mind.

Land Trusts are forever and a day old.  Typically they are used to conceal the ownership of a property.  Specifically her question was using Land Trusts for lease option deals.

I will admit that I used a Land Trust nearly a week after attending a great seminar presented by Mr. Land Trust, Mark Warda.  I didn’t even know what I was doing, but I sat all day in this seminar and I was determined to put this information to use.

Originally we purchased the property for cash and had the seller transfer it into Land trust prior to closing. 

The reason we did this was to conceal our purchase price.  By placing the property into land trust prior to closing we were able to buy the beneficial interest in the trust rather than the actual real property.  We paid our doc stamps to Tallahassee and the local property appraiser had no clue what we paid for the property.

The two benefits to this transaction were:

1. The property appraiser had no record of what we paid, so there was no increase in our property tax rate.
2. We purchased this property to rehab and flip.  Since the property appraiser didn’t have any record of what we paid it didn’t raise any red flags to the buyer’s lender when we sold the property 3 months later for $50,000 more than we paid for it.

This was a great use of a land trust, but there was one problem…  At the time that I purchased this property we also had 2 other rehabs going and I was running out of money FAST.  Since we purchased the property cash I thought I could just go down to the bank and pull a 50% LTV loan with no questions asked.   WRONG!  They wanted me to take the property out of land trust to do the loan.

Rather than doing all that work I decided to take my chances going broke while doing three rehabs.  A little silly perhaps, but it worked out.  We sold one of the properties 2 weeks later and we were back in the black.

Land trusts can also be a great tool when you are offering Owner Financing.  When you set one up with your attorney they can make you the primary beneficiary and the buyer the secondary beneficiary.

The great part about this technique is that you don’t need to foreclose if they don’t make their payments.  You can just take the property back since you are a beneficiary to the trust.  This technique is used by most Hard Money lenders.

Anyways, I think I’ve rambled on enough about this subject.  The truth is that Land Trusts like every other tool we have as investors, has almost limitless options.

The reason that I am fascinated with Real Estate is because you’re only limited to your own creativity.  If you can dream it up and both parties agree then your attorney can put it on paper and you have a deal.  Good night and Happy Investing.