OfflineRight now is the perfect time to be investing in real estate! Home prices are at an all time low, and the market is flooded with short sales and foreclosures just waiting for savvy investors to snatch them up. Unfortunately, if you have poor credit or no money to invest with than real estate investing can be scary. A good investing strategy for someone who has poor credit and no money is wholesaling. Wholesaling is where you find a property 30% to 50% below market, lock it up with a contract that states you can reassign the deal, find an end buyer and sell that contract for $5k, $10k, etc. Bingo! You just made $5k and you didn’t use a dime of your money, except maybe a small earnest deposit of at least $1. If you do 10 or more of these deals, soon you will be able to leverage your money to purchase your own property and start creating passive income. You’re on your way to being a millionaire! Right about now, you’re probably thinking to yourself “This is awesome!” Not so fast my friend. Regrettably, due to the banks owning all the homes this scenario is difficult to practice.
Banks employ people who have no clue how the real estate market works. After all, they’re in the business of loaning money, not property. As a result, you will find that the banks have “restrictions,” “guidelines,” and “regulations.” You can put an offer in on a house 25% below the fair market value (FMV) and they won’t accept it. So, the house sits on the market for another month or two. You decide to put in another offer 5 weeks later. You’re kind of ticked that they didn’t take your first offer, so you offer them even less. You offer 50% below FMV. Bingo! The bank has accepted your offer. About now you’re scratching your head because 5 weeks ago you were willing to pay 25% more for the property, but they wouldn’t accept it. Now they just lost 25% more money for themselves. Perplexing isn’t it? Don’t think to hard on this because they are clueless… plain and simple. Due to their cluelessness they don’t understand investors. So, when you go sign your paperwork with the intention of assigning your deal to another investor, don’t be surprised if the agent tells you, “No way! The bank will not accept an offer with “and/or assignee” on the title. No ifs, ands or buts!” You think, “Who cares who takes title as long as the bank receives their money?” Again, they’re clueless, but WE are SMART, SAVVY investors! We know how to break the bank’s “restrictions,” “guidelines,” and “regulations.” And the best part… it is ALL legal! So, how do you assign bank owned property? With a land trust, of course!
First, what is a land trust? A land trust is an agreement between two parties, the trustee and the beneficiary. The trustee agrees to hold ownership of a property for the benefit of the beneficiary. On title is the trustees’ name not the beneficiary. The beneficiary holds all the equity of the property. Investors (smart ones) who own multiple properties use a land trust to keep their personal information private. For example, your trustee takes title to a property you own, but you’re the beneficiary. That means if someone wanted to sue you and they looked for property you owned, they wouldn’t find any because it is under your trustee’s name. Most likely, the attorney would tell the suing individual there is nothing to sue for because on record it appears that you don’t own anything. So, how does the land trust work in wholesaling reo property?
When you make your offer, you are going to tell the agent that you are purchasing the property through a trust. Therefore, you want to take title as… Joe Sample, Trustee, exact vesting TBD at closing. Now the reason you need to add “exact vesting TBD at closing” is because you want to have time to sell (or assign) the beneficiary rights to another investor. If the agent asks you why you can’t determine vesting now, you tell them that you have several investing partners and depending on what you all decide to do with the property will determine which LLC or investor is going to take hold of the vesting. Once your offer is accepted, you immediately take pictures of the property, write an ad on CL saying something like “Wow! 50c on the dollar! Great cash flow property! Hurry before you miss out on the best deal in town!” You are also going to want to email all your buyers from your buyer list. When you find a buyer, you’re going to want to explain to them why you took title as a trustee. You want your fee upfront and a proof of funds letter immediately. You can’t wait around for a loan approval. Your buyer needs to have cash.
Now, you have two options. The first, and best option, is to call escrow and tell them that you and your partners have decided how you’re going to take vesting. Give escrow a copy of your end buyers proof of funds letter and his/her information. The escrow company will remove your name from the title. Now you can walk away (make sure you have your fee first) from the deal and the end buyer finishes the deal. What if the escrow company says, “No way, your name is on title as trustee, and if you want to finish this transaction it needs to stay on title”? This is where option number two comes into play. You still collect your fee from the end buyer, but you tell them that the bank will not allow you to put his/her name on title. So, you’re going to finish the transaction (with the buyer’s money) as trustee, but put his/her name as the beneficiary. After you close, you immediately deed the property to the buyer, thus dissolving the trust automatically. Option one is a much cleaner method.
About now, you’re probably thinking “Wow, great method, but what about putting money down”? Well, you’re going to have to at least put a few hundred (preferably not more than $500) earnest money down if the offer is accepted. The key to getting your offer accepted is telling the bank you’re paying CASH for the house through private funds. You can get a proof of funds letter from a hard money lender or coastal-funding.com allows you to do it online. Just remember to have the amount you’re offering exactly the same on your proof of funds letter. You don’t want to offer $60k for a house, but on your proof of funds letter it says you are approved for $70k. The bank will definitely come back asking for more money if they can get it.
I am going to tell you right now that only a few, and I mean a few, lawyers know about land trusts. In California, I found one! That’s right one attorney! So, if you go to your attorney and they start giving you a bunch of nonsense (one told me I needed a probate attorney and that I should think of using LLC’s) then you need to be forceful and tell them to research an Illinois Land Trust. I've attached a copy of a land trust. You might want to have your attorney look at it.
Happy Investing!
KimmyJ
“Commit to the LORD whatever you do, and your plans will succeed.” Prov.16:3
Hi Kimmy,
Per the other forum topic that we have been conversing on, this thread shows the nust and bolts of how to use a land trus! Can't thank you enough! I'll let you know if I run into a problem with my realtor's atty and give you a buzz........I am also in CA.
Neil
What a post..!!! I spoke to my broker, and they see the value here, but suggest I see a local attorney to iron things out for Oregon.....If all goes well.....this could be a GOLDMINE. Folks....the GRAND DADDY of MOTIVATED SELLERS ie...the BANKS.....May just have become our ASSIGNMENT heaven.
Thanks Kimmy....You deserve an atta-girl for that one.
Sam
BUILD your knowledge base....it is your ARSENAL to wage war against disbelief and the negativity of the status quo. You need your weapons......It's your choice whether you carry them or not.
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Build Relationships and open the door to opportunities that could once only be dreamed of......never take those relationships for granted.
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Don't let EXCUSES be the nails that keep you INSIDE the box.
HELLO EVERYONE,I'M ALSO NEW HERE-LAYING BACK-SOAKING UP ALL THIS INFO ON THIS AWSOME SITE. I ALSO READ BARM, ORDERED HIS COURSE, AND JUST RECIEVED HIS NEW BOOK (AWSOME). I LIVE IN NY OUTSIDE OF SYRACUSE. THER ARE SO MANY COMBINATIONS OF WAYS TO GET IN THE GAME THAT I HAVE TO STOP- START OVER -AND WOULD LOVE TO START SMALL. FOR EXAMPLE, THER IS AN REO LISTED UNDER A REALATOR FOR $15,900 (3BED/1BATH)FMV ZILLOW OR REALESTATEABC.COM $70,000. NOW CAN MY CREDIT OF 773 HELP ME IN ANY WAY NOT TO JUST CONTRACT THE PROPERTY, BUT ALSO GET A REHAB SORT OF LOAN. MY PLAN IS TO CONTRACT, RENT, OR FLIP. READY TO GET FEET WET THANKS FOR ANY INFO>>>>>..
And to think I was going to go to bed without checking back on DG. What a wealth of information I have learned from you here on my very first day! I don't understand it completely as I'm a greenhorn, but have a pretty good idea of how it can all work once I learn the terminology (and everything else).
I'm calling my RE atty tomorrow to ask if he knows of land trusts. I'm so excited I don't think I'm going to sleep much tonight!
Night All.
Hi Kim!
Thank you so much for being so generous with your knowledge! (I sent you a PM asking for help with the land trust before I came here and read your post, so you can disregard the PM!) We could have saved ourselves $100 and 2 hours of frustration inside the attorney's office if only we had asked you first!! You are awesome! I'll hopefully be talking to you soon and maybe see you at the REI club Thursday.
Thanks so much! That is buy far the one of the best posts I've seen. There's nothing else to understand, you covered it all. Going to have to tell Dean to put that in his next book. I'm calling my reo agent at 6:30 in the morning lol naw I'm just kidding it will be at 7:00. Thanks kimmy your are the best.
Develop Your Millionaire Behaviors
Listen to your instincts, Invest in yourself, Educate yourself, Compete against yourself, Raise your standards, Move past your fear, and Challenge yourself
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I have been trying like crazy to get into investing and not only did you nail it perfectly you did it on ILLINOIS!!!!!!!!!!! I am going to go over your post with a fine tooth comb and then start laying down offers with my chosen realtor here in good old peoria,,ILLINOIS,,good stuff and it fits my state like a glove,,I will definately keep you posted,,,much thanks!!!
Hi Kimmy,
To continue with this topic, I just received the following response to using land trusts to buy REOs:
California mortgage lenders do not allow borrowers to place a deed in a trust, nor will they accept an offer written using a trust name. I've tried this, several times, and each time was asked to re-draw the contract. It has been my experience that all my clients, with zero exceptions, and regardless of which lender they used, had to first place the property in their name (no trustee, no trust), and then re-file under their trust once the property closed escrow. Escrow always told Clients to wait a week or so. The title company would prepare the deed in the trust, collect the $15 to process, and mail it later to the recorder's office. The new owners would received two deeds, the first one in their name and the second one in their trust. Check with your hard money lender to see if they can do it if you were to write the contract in a land trust
I hope she is wrong (or can get around this). Kimmy, have you used this strategy yet or know someone that has? Trying to keep it positive here, and just want all of us to be on the same page. Maybe this strategy works in different states........
Neil
I just want to reiterate that when you talk to lawyers, most of them are not going to know what you're talking about when you refer to a land trust. Especially, out west. The land trust was invented in Illinois and only a few states (I think Virginia is another state with land trust laws)have actual land trust laws. The great thing is that land trusts can be used in almost all 50 states. If you want more information, check out wikipedia. They have a whole section on land trust. Oh, and call attorneys on the phone and ask them if they are familiar with land trust. Do not make an appointment with an attorney unless they understand land trust. I called 10 attorneys and none of them knew what I was talking about. I found 1 attorney (who I will probably use because he is local) who told me that if I give him the opportunity, he will learn everything he can about land trust. I told him that I was a new investor and I was looking for a long term business partnership. I planned on purchasing and selling 100+ properties over the next two years. You bet his ears perked up at that statement.
KimmyJ
I fully agree with the lawyer situation, just concerned about my realtor's comments. She is VERY good at what she does. I am sure we can put our thinking caps on and make this work. And it seems that you haven't closed a deal yet using this method. Maybe after you and your lawyer make an offer using the land trust, that will give all of us confidence that this does in fact work.
Neil
To continue with this topic, I just received the following response to using land trusts to buy REOs:
California mortgage lenders do not allow borrowers to place a deed in a trust, nor will they accept an offer written using a trust name. I've tried this, several times, and each time was asked to re-draw the contract. It has been my experience that all my clients, with zero exceptions, and regardless of which lender they used, had to first place the property in their name (no trustee, no trust), and then re-file under their trust once the property closed escrow. Escrow always told Clients to wait a week or so. The title company would prepare the deed in the trust, collect the $15 to process, and mail it later to the recorder's office. The new owners would received two deeds, the first one in their name and the second one in their trust. Check with your hard money lender to see if they can do it if you were to write the contract in a land trust
I hope she is wrong (or can get around this). Kimmy, have you used this strategy yet or know someone that has? Trying to keep it positive here, and just want all of us to be on the same page. Maybe this strategy works in different states........
Neil
Neil, get a new agent! Yes, they do work and a name is being placed on the title... yours as trustee! I have a local investor who has introduced me to this strategy, here in SoCal, and he has done almost 100 of these deals to date! So, again, here is a classic example of an agent not wanting to step outside the box and instead squash your dreams! When I told my agent, she said "Oh, we can totally do that!" Granted I've had to prod her along a bit. The banks do not want a "Trust" taking possession of a property. They want a person's name on the title. That is what your agent is getting mixed up.
KimmyJ
So what you are saying is that I would sign the bank's purchase agreement using my name, trustee and use the verbiage exact vesting TBD at closing. Does the trust become an addendum to the bank's contract?
I will show your comment to my realtor and she is running it by her atty. Hopefully he will understand this. If not, may I have my realtor speak with either your investor, atty or agent. This may put her at ease that this CAN be done. If you like either PM me or send to my email Neilkim24@****.
Thanks for everything!
Neil
Don't make this harder for yourself than you need too... This is so easy, but everyone is making more out of it then there needs to be. You do not need to have your land trust filled out when you put your offer in. You do not need a lawyer to fill out your land trust. The purpose of the lawyer is to make sure the wording is correct and legal for your state. That's it. You will have dozens of blank copies of your land trust, and you will fill them out yourself as you close on deals. Your lawyer does not need to be involved. However, you want to first go for option 1... just telling the escrow company that you want to change names on who is taking title. You only use the land trust IF the bank will not allow you to put your end buyer on the title. If they say "NO" then you let your end buyer know that you're going to have to close on the property with their money. That's when you fill out the land trust and put your end buyer as the beneficiary. This system works guys. I'm sure all the agents are throwing a fit because they don't have the knowledge regarding land trust. Remember, it's not a well known document. Don't let this stuff get you frazzle where you paralyze yourself making an offer.
Kimmy,
Thank you so much for the last post. I apologize for all the questions but I am the "middleman" between your advice and my realtor's comments. The trust itself may never have to be used as you say. But we sign as trustee IN CASE we have to use option 2.
Well done! Time to get my realtor on board b4 you buy all the REOs in CA.
I'm in the bay area so hopefully I am safe.
As always, thanks,
Neil
Don't apologize for the questions, that's how we all learn. You're not the only one with questions. I received several PMs regarding the land trust. I just thought it would be easier to clarify on the thread. This way everyone learns.
Happy Investing!
KimmyJ
Hi Kimmy,
This is exactly what I need!!! I really want to wholesale a few houses so that I can buy a rehab to flip or hold.
Thanks for the attached doc.
Sunshine
HELLO AGAIN EVERYONE I HAVE FOUND SOME MORE LAND TRUST INFO FOR YOU. GO TO YOUTUBE.COM AND TYPE - Benefits of Using a Land Trust-. THIS IS SOME GREAT INFO THANKS.!!!!!!!!!!
_____________________
"Don't bunt. Aim out of the ballpark."
David Ogilvy
Thank you Snowman318! YouTube was really helpful! We also watched an 8 minute YouTube video titled, "Filling Out A Land Trust," which walked us through it step by step (which some of us need!!). We are really getting such great information. I can't believe we wasted our time with that worthless lawyer when all we needed to do was come here and chat with our fellow investors! Thank you to everyone for your comments and advice. We will be making 2 offers tomorrow using land trusts, so we'll let you all know how it goes!
Hey Kimmy
One of my investors was telling me about this several months ago and I kept thinking to myself "What the heck are you talking about...this will never go over with realtors and title companys." He uses this way all the time and tells me how great it is for wholesalers. I am going to have to give it a try ans see what happens.
I know a lot of new people are going to be asking you about what goes in this blank and what goes in this one. Can you fill out the spaces for everyone to look at as a sample?
Thanks for the great post!
Sissy
"THE ARCHITECT OF YOUR DESTINY IS YOURSELF"
"SUCCESS WALKS HAND IN HAND WITH FAILURE"
Kim
If it comes to this... I can see my investors saying this sound fishy or I don't want to put my money up with someone else as the trustee.
How do you get around this?
Sissy
I guess this is why it is always good to use your RE attorney so they can privately close the deal with no questions asked.
"THE ARCHITECT OF YOUR DESTINY IS YOURSELF"
"SUCCESS WALKS HAND IN HAND WITH FAILURE"
Kimmy
I know when a realtor is involved and a deal is accepted they are naturally going to pull out the state approved realtors contract. Is this land trust attached as an addendum to the state approved realtors contract?
Sissy
"THE ARCHITECT OF YOUR DESTINY IS YOURSELF"
"SUCCESS WALKS HAND IN HAND WITH FAILURE"
I have a PDF file with the History of the Land Trust. I will figure out how to attach it. I had to start a new thread...LAND TRUST ARTICLES
BUILD your knowledge base....it is your ARSENAL to wage war against disbelief and the negativity of the status quo. You need your weapons......It's your choice whether you carry them or not.
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Build Relationships and open the door to opportunities that could once only be dreamed of......never take those relationships for granted.
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Don't let EXCUSES be the nails that keep you INSIDE the box.
NO PROBLEM, JUST SEARCHING THE WEB AND IKNOW VIDEOES ARE THE NEXT CLOSEST THING TO HANDS ON EXPEIRIENCE!!!! LOOKING FORWARD HEARING FROM YOUR DEALS 5HENTERPRISES.
___________________
" It is hard to fail, but it is worse never to have tried to succeed."
Theodore Roosevelt
You make your offer using your realtor's state approved purchase agreement. You don't file any extra paperwork except at the end with escrow. Just before closing they're going to ask for a copy of the land trust. That's it. By you making your offer with Sistreat, trustee, exact vesting TBD at closing, you are already putting the world on notice that you're taking title to the property as trustee. As for the buyer, there is going to be a little trust needed from the buyer. That is why you're going to fill out the trust with the buyer as the beneficiary and give him/her a copy. This way they know that they have equity in the property, so they're not getting gypped.
KimmyJ
What happened with the deal if I couldn't find buyer to reassign a deal? Can I withdraw my offer from the bank or I need to buy the property myself?
I almost forgot. DO NOT name your trust "Your Name" Trust. Use the address of the property you're purchasing. For example, 123 Main Street Trust or Broadway Street Trust. You want to keep your name off of as much of the paperwork as possible.
KimmyJ
Your going to have contingencies in your offer like subject to 30 day inspection or subject to partner approval. This way if you don't find a buyer in the next 30 days, you can back out of the deal.
"Your going to have contingencies in your offer like subject to 30 day inspection or subject to partner approval. This way if you don't find a buyer in the next 30 days, you can back out of the deal"
Do you have example how to write the offer to bank ?
Your real estate agent or, if you go direct, the listing agent will have the necessary paperwork. You tell the agent that it needs to say Jakovass, trustee exact vesting TBD at close of escrow. That's it. The agent fills out the paperwork and does the rest.
1.How to hide price of the house for the reassign deal so my buyer don't know how much cost the house for me?
2.What document need to use to get my earnest money from the deal?
3.Do I need to show my funds to the REO owned bank when I make an offer?