I am looking for a couple of CPAs/tax attorneys to review this IRS code to get their professional opinion.
The only thing that the tenant/buyer will claim is beneficial interest since none of the beneficiaries have legal and equitable title to real property. That’s being held by a 3rd party corporate trustee which we pay them a monthly trustee fee to hold title on behalf of the beneficiaries. i wouldnt trust someone’s mom, dad, brother, sister, seller, tenant/buyer or another investor to hold title.
Tenant/buyer holds a beneficial interest in the trust and would give that IRS code to his/her CPA. I’d tell them to have their CPA look at the code first before even structuring the deal.
after the trust is created, title is conveyed between homeowner and their trustee only which shouldn’t trigger the DOS. the homeowner will retain “a” beneficial interest in their own living revocable trust and assign a percentage to investor and tenant/buyer as co beneficiaries. there’s a beneficiary agreement that will be signed with all 3 parties. then a separate occupancy agreement between trustee and tenant/buyer.
how is this not different from 3 people(seller, investor, tenant/buyer) in an LLC where it holds real estate asset and one of the LLC members will live in the property, make payments, repairs, etc? isn’t this how an equity sharing is done?
i get what youre saying about the ohio case. ill probably stay away from ohio until i can find a good attorney that understands how this strategy works. im in california so im not worried about ohio at the moment.
im having an easier time explaining it to a layman when it comes time to talk about beneficial interests and land trusts. im educating them on the risks and pitfalls first of a lease option or wholesale or contract for deed and then explain why we prefer to use land trusts to hold our interests. i encourage them to ask me questions so i can clarify or give them examples. if they dont get it, next! but you’re right though, its complex and hard for others to explain it, but ive jumped over that hurdle.
yes youre right. i dont market beneficial interest. no one knows what that is. the way i market is
just take over our payments, and we’ll give you one of our properties.
no down, no bank qualifying, no credit needed, no new loan
just 5% plus 1st month and its yours.
i got over 100 interested tenant/buyers within 1 month of advertising my properties that i have under option. unfortunately majority of these properties have high payments and bad loans. loan modification would be the key to cut these payments down to make them more marketable
tenant/buyer is a co-beneficiary with beneficial interest and leasing from the trust based on a triple net lease agreement. they’re entitled to take those deductions as a beneficiary based off the IRS code. they would need their own CPA before even dealing with us. that IRS code had nothing to do with the DOS clause.
in regards to my claim of the DOS, as i said, i just have to give a written letter with that federal code to the lender if they call the loan due on us. youre right about the lenders that can call the loan due but i am prepared for that. most investors or agents that i talk to who are doing lease options or wraps dont even care about the DOS. at least i can explain it to the lender saying that we’ve structure the homeowner’s property like a commercial type strategy using a triple net lease agreement within their own living revocable land trust. so it makes it a stronger performing asset for the lenders and mitigates the risks for the homeowners to avoid the burden of double mortgage payments, negative cashflow, landlording headaches. i would also tell the lender we’re sending payments to our trustee’s collection service to pay them the monthly mortgage. most would have to trust the seller or investor to make the payments and for all we know, they can just pocket the money and do rent skimming.
BLL, i respect your opinions and i completely agree where you’re coming from. these are the risks and im using gatten’s methods to mitigate these risks. i prefer to do it correctly using his documentation versus cheaply and quickly. some investors say that a land trust is not needed and investors can do what im doing in a simpler way. however i prefer this complicated method because im comfortable with it and it answers a lot of the risks and pitfalls most gurus never explained/taught to me. they’d either dance around the issue or completely ignore it. gatten has addressed them and its my preferred tool.
that 1 case wont stop me from doing creative investing and its just a matter of having a good attorney and umbrella policy to protect me. just as long as i have an option agreement and a purchase agreement, i would not need a license because i am a principal for loss or profit. also i’m in the deal for the long haul until new financing comes into play to cash everyone out. licensed agents are not principals in the deal not unless they want to participate wearing an investor’s hat. otherwise every investor would need a real estate license and FSBO’s wouldnt exist.
you might want to check in www.landtrust.net for any other examples of court challenges. there has been plenty of debates with land trusts and gatten’s method but i dont have time to go into it.
im just focused on closing my first gatten deal safely and correctly.
much respect BLL