Webinar Series Info
June 28th, 2009
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Archive for June, 2009
Investor’s House Hunting Toolbox
June 27th, 2009
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The hunt is on. You are in front a house that you may want to buy. Do you have everything you need?
Here is my recommended list for what you should have with you.
- Map or GPS Unit – to find the property
- Something to record notes. This can be a pad of paper and pencil, a voice recorder or anything else that works for you. I recommend a form on paper that lists common rooms and items within each room – this insures that you looked at each item for presence and condition. I also like to have this on a clipboard
- Camera – still or video. Taking a picture of the front of the house and some interiors now can save you from having to revisit the property later.
- Tape Measure – 100’ would be nice so that you can measure the outside dimensions of the house.
- Flashlight – especially required for a REO or other vacant, powered down house
- Marble – useful on hard surfaces to determine if the floor or countertop is level. Sloped floors can indicate settling or foundation issues which can cost you.
- Binoculars – useful to look at roof conditions. Sometimes the only way to see a roof from the ground is from a distance from the house. Also useful to look for house numbers when the house is away from the road.
- Plug Tester – used to determine if electrical outlets are wired correctly and provide adequate ground
- Awl or knife – useful for checking wood rot
- Your notes about this property. Did you already talk to the seller? What things did they mention that are issues you should inspect? If the property is listed, bring a copy of the listing information.
- Calculator – used to total the estimated repair items and calculate your offer price.
- Blank Offer form – don’t waste time. If you like the property, write the offer!
When I walk-through potential houses, I wear casual clothes since the place may be dirty or ‘interesting’. I do not crawl under the house or into the attic spaces, so I don’t need coveralls. My inspections generally take under a half hour.
Note that I always hire an inspector when my offers are accepted – even without an inspection contingency. As a worst case, I may need to walk away from the earnest money deposit – but that can be a WHOLE lot cheaper than buying a house with expensive issues that I missed on my initial walk-through.
Any suggestions for things to add to this list?
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Using Land Trusts to Keep Your Property Ownership a Secret
June 26th, 2009
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What is a Land Trust?
A Land Trust is an instrument used to separate ownership of property into two parts – control and benefits. There are generally three parties (sometimes 4 – which I will talk about later) which are described by the Trust – the Grantor, the Trustee and the Beneficiary.
Grantor
The Grantor is the party that transferred the property into the Trust. The transfer can be at the time of purchase or at anytime during the life of the ownership. When the Grantor deeds the property to the Trust, they no longer have any control nor do they derive any benefit from the property – these aspects of ownership pass to the Trustee and Beneficiary respectively.
Trustee
The Trustee controls the assets of the Trust. Usually, the Trustee is given this control with severe restrictions on when they can exercise this control. Specifically, the Trustee is usually given the ability to deed the property from the Trust to another entity – but they are only allowed to sign such a deed with written instruction from the Beneficiary. To do so without such instruction is embezzlement and fraud. The Trustee can be either a person or a business entity (corporation, LLC, etc.) and should be deemed trustworthy by the Beneficiary.
The Trustee serves at the whim of the Beneficiary. If the Beneficiary wants a different person or entity to fill this role, they can ‘fire’ the current Trustee and install a new one. The method to do this is described as part of the Trust document.
Likewise, the Trustee could resign. Again, this procedure should be part of the Trust document.
Beneficiary
The Beneficiary derives all of the benefit from the assets of the Trust. This means that any rents collected or proceeds from the sale of the assets will ultimately be directed to the Beneficiary. The Beneficiary can be made up of any set of persons and corporate entities – in any percentage of ownership (i.e. Bob Smith could have 25% beneficial interest and Smith and Sons, LLC could have the other 75%).
The Beneficiary can also be changed during the life of the Trust. To continue the example above, Bob Smith could sell his ‘beneficial interest’ in the Trust to Sally Brown. This is considered to be the sale of ‘personal property’ rather than ‘real property’ because the property continues to be owned by the Trust and what is transferred is only an ‘interest’. Again, the method of documenting the transfer of beneficial interest should be described in the Trust document.
Depending on the laws in your jurisdiction, the change of Beneficiary may still be a taxable event (i.e. transfer taxes or excise taxes). However, the paying of this tax does not have to reveal the identity of the Beneficiary.
Director
The Director is the 4th role that is sometimes used with a Land Trust. When used, the Director is responsible for directing the Trustee – and often the Trustee is to listen only to the Director and not the Beneficiary. This is useful when the Beneficiary is a collection of persons or entities and the Director is assigned to be the sole voice for them all. Another use would be if you want to give the benefit of a property to family members but you want to stay in control.
How Are Trusts Created?
A Trust is created in the same way that a contract is created. A document is created that describes the Trust and the role of each party in the Trust. The Trust document does not need to be filed with the government nor does it need to register with the IRS.
The Trust can be named in any way that the creator of the Trust wants. For example, a Trust could be called ‘Smith Family Trust’ or ‘123 Main St Trust’.
Why We Use Land Trusts
Trusts provide anonymity and continuity.
The anonymity is gained because of how counties record the ownership of property. When property is owned by the Trust, the county records show the ownership listed as the name of the Trust. Sometimes the name of the Trustee at the time of transfer is also listed as part of the ownership record.
We never want the Beneficiary listed in the county record, so we don’t file the Trust documents with the county. They should not demand them, but if we give them, they will record them. Remember that anything recorded is available to the public.
Additionally, our Trust document directs the Trustee to never reveal the identity of the Beneficiary without a court order.
The continuity is also a result of the county’s method of recording ownership. Since the property is owned by the Trust, the Trustee and Beneficiary can be changed without going back to change the listing in the public record. This can be used to mask the transfer of property from one Beneficiary to another.
How We Use Land Trusts
We use the rule of 1 property per Trust. This makes it harder to figure out how many properties are owned by the Beneficiary.
For example, let’s say that Tulsa House Buyers, LLC acquires 123 Main St. When we do this, we will take title in a new Trust called ‘123 Main St Tulsa Trust’. We will assign the Trustee role to either an attorney or to a corporate Trustee (some banks do this for a fee). The Beneficiary will be Tulsa House Buyers, LLC.
Whenever anybody in the public wants to find the owner of 123 Main St., they will look in the county records and find the name of the Trust and the mailing address for the Trust. This Trust will only own that one property. There is no easy way for the public to determine that Tulsa House Buyers owns it, or how many other properties are owned by Tulsa House Buyers.
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Turn These Economic Times To Your Advantage
June 20th, 2009
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Check out http://www.FromTheFont.com!
7 speakers who will share with you the strategies that they are using to make money in today’s market. You owe yourself a look!
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More on HR 1728
June 15th, 2009
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Have you called your Senator? LC Kelly sent me a script of a great conversation that she had with one of her Senator’s staffers. Click the link to get and get motivated!
Even though I reported that Senator Dodd is indicating this bill will die in committee, you should still call. The Senator could change his mind, or he could have been misquoted. Also, the folks in Washington DC need to hear from us or they will pretend to know what we think.
Give them a call!
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Update on HR 1728
June 12th, 2009
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Yesterday, I sent out an email to a bunch of folks expressing my concerns about this bill. My broker forwarded my email to a contact who is involved in lobbying for the National Association of Realtors (NAR). I don’t have permission to post the entire response, but I will give the synopsis.
It looks like this bill will die in committee because it is not a high priority item for Senator Dodd (chairman). Dodd’s comments appeared in a May 28th release of Inside Regulatory Strategies and these comments indicate that he believes that the collapse of the sub-prime mortgage market has reduced predatory practices and 1728 is not really needed at this time.
Evidently, the original language in the bill caused real estate agents to be classified as ‘mortgage originators’ as well as ALL sellers who provide seller financing. NAR was involved in getting the current language to both exclude real estate agents and to provide some exclusion for sellers who provide financing (the 1 in 36 month exclusion).
It sounds like NAR supported seller financing, but could not convince the bill writers to provide a complete exclusion.
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Disappointed with Bill Bronchick
June 12th, 2009
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There is quite a bit of email being sent regarding H.R. 1728: Mortgage Reform and Anti-Predatory Lending Act (see it yourself). Wendy Patton describes it here.
Bill Bronchick started a thread over at CRE Online stating that he did not think investors had anything to worry about regarding the bill.
Unfortunately, in the followup thread started by James (James 17:16:43 06/09/09), Bill (William Bronchick 11:43:47 06/11/09) reveals another side with the comment:
Licensing, in my opinion, is a good thing. It weeds out competition so I can charge more for my houses. Getting licensed is not that big a deal, a surety bond only costs a few grand. If you don’t want to be licensed, then have a licensed originator do it for a small fee and charge that to the buyer. In fact, you’ve given me an idea – I will get licensed in my state and charge others $1,000 to draft a few documents!
So we went from ‘no problem’ to a limited number of people with licenses (or an extra expense) being able to use seller financing.
Disappointing!
