Wiz
My wife and I am considering putting some of my properties in a Trust and I was wondering the best approach. I have two closings in the next two weeks one selling and one buying.
Three of the properties that we will own will be rentals, 2 SFH and 1 duplex. One is our SF residence. We will also be purchasing a house from my brothers estate to rehab and sell about 1 month out. How many houses do you recommend putting in a trust and roughly what are the costs associated with it? How long does this process take?
I have read your posts and appreciate yours and Rogers comments and I have learned a great deal. A ‘Trust’ is another one of the tools that an investor should know and understand!
My wife had an interesting thought if you group our 3 investment properties that we intend to hold for 3-5 year into one trust can you borrow against the assets of the trust? I know you have stated that you have to take properties out of the trust to refinance. We expect it would be about $80K in equity. Most of the propeties we have a 20% interest in.
Thanks,
NDI
NDI,
It’s great to see small investors taking advantage of the methods used by the wealthy to build their portfolios. Good for you. Now, to your question:
In many cases, private lenders will make loans that can be secured by a collateral assignment of one’s full or partial beneficiary interest in our Equity Holding Trust System™. However, due to the lender’s general lack of knowledge about such trusts, don’t expect to accomplish much by approaching institutional lenders at random with a request for such a loan.
Nonetheless, a lender opting to be secured by real estate would be far better off with a collateral assignment of such beneficiary interest, in that there would be no need for standard foreclosure, and time and costs constraints would be greatly diminished. With land trust interest as security, the secured party may proceed directly against the trust without NOD restraints, publication, auction, or concerns of the borrower’s right of redemption.
See UCC Regs §§§9-102 (1972); 9-504 (1978); 9-501(3) (1978)
See, for example, Fla. State. §679.304
Best of luck to you. One more thing. Be very careful to select a professional non-profit Trustee corp. as your trustee and NEVER be both Trustee and Beneficiary of your own trust. If a trustee is also a beneficiary, a merger of title is created (see Doctrine of Merger), invalidating the trust if challenged in court as being a bona fide land trust.
Da Wiz
Thanks for the input Wiz!
Could you please give me idea on these other questions?
How many houses do you recommend putting in a trust and roughly what are the costs associated with it? How long does this process take?
If there are any specific banks that you are aware of that might do this type of loan you cam PM me with the details. If I find a banker that understands trusts I would be in a better position. Right now I am using Hard Money and I would like to put more into my pockets instead of putting into other pockets.
Thanks!
NDI
Thanks Again
Hi ND,
Setting up a trust usually can be accomplished within 2-3 weeks, depending upon its complexity. You can place up to 4 properties into a trust but I only recommend doing so if you are holding those properties for extended periods of time because if you sell or refi one of them, you will have to dismiss the trust, then reinstate all the properties. I like the one-trust one-property scenario for simplicity.
Land trust costs vary. For a simple trust for your own home, it runs $468 which includes your trustee fee ($144) for a year.
For an equity holding trust with more than one beneficiary, the cost is 1% of the Mutually Agreed Value, plus $500 ($200 for accounting review; $300 for legal review). These charges are from the realty services company that prepares the documents.
When creating a simple single beneficiary land trust for just the purpose of shielding ownership from public view, one can legally name just about any one or any entity he/she would choose to function as a trustee. However, when more than one beneficiary (i.e., a trust involving other parties with disparate interests and objectives) is involved, there are severe drawbacks to using any entity other than a third-party, non-profit, corporate trustee. The trustee (a totally separate and unrelated non-profit corp) charges a $500 setup fee, and $39 per month, standard for the industry. Total is usually around $2000, which my tenant always pays.
Some people will tell you that you can pick up land trust papers for $12. You probably can, but if you want proper asset protection with all of your documents reviewed by knowledgeable attorneys so that you can feel certain you are fully protected, you get what you pay for. There are many other documents that need to be gathered and added, of which none of these are required in a Simple Trust…
- Copy of the Deed of Trust
- Copy of the Note/s (1st & 2nd)
- Copy of Monthly Statements for Loan/s (1st & 2nd)
- Copy of the Hazard Policy
- Copy of the Property Tax Notice
- Conversion of Hazard Policy to a Landlord Policy
- Change of Address Forms for Taxes and Insurance
- Notice of Uninsured Deed
- Assignment of Beneficial Interest
- Beneficiary Agreement
- Net Sheet and Crossfoot Report
- Fee Disclosure Agreement
- Any Riders that may be required
- and then you can add the Net Lease and Occupancy Agreement.
MOST IMPORTANT: This is where many people make a serious mistake. NEVER make yourself the Trustee. If a trustee is also a beneficiary, a merger of title is created (see Doctrine of Merger), invalidating the trust if challenged in court as being a bona fide land trust.
Da Wiz
Wiz
My thoughts would be to put the properties that I would like to hold for 3 years into one trust to control expenses. Would you have to desolve the trust to sell one property?
Thanks Again,
NDI