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
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?
Your not going to hide the real price of the property because the end buyer is going to pay you fee up front, so he/she will know when they go to close. Unfortunately because we are dealing with banks, we can't hide our fee.
You need a proof of funds letter from a lender or your bank statement if you have that kind of $
Your proof of funds letter is all they need.
If I buying REO for $15000 and think to reasign it later for $20000 what need to write in purchase document $15000 or $20000 ? Or may be I need to fill extra document with my future $5000 earnest money for the reasign deal?
I'm confused. Are you talking about your wholesale/assignment fee or the earnest money deposit you put down on the property? If your purchasing the property for $15k then that is your offer. The bank does not need to know that you are going to sell to another investor at a higher price. If you are talking about your assignment fee then your going to need to use an assignment form.
I was thought about my buyer which could find how much the real estate property cost.
So in that way I need to add additional column in purchase agreement between me and new buyer which show me my earnest money.
On the purchase document you put $15,000...on your assignment document (when you find your end buyer) you put your $5000 assignment fee.
"THE ARCHITECT OF YOUR DESTINY IS YOURSELF"
"SUCCESS WALKS HAND IN HAND WITH FAILURE"
We think we are following you pretty well, but there is some confusion on who is the Trustee and who is the Beneficiary. Our advisor at Dean's Success Academy says that he does land trust deals all the time, but he is the Beneficiary and the end-buyer is the Trustee. Then, after he receives his assignment money, he adds an Addendum to the Trust to assign his beneficiary rights over to the Trustee. Then, the end-buyer is both the Trustee and the Beneficiary, which voids the Trust (the same person can't be both Trustee and Beneficiary), and he is the de-facto owner of the property that the Trust purchased. Of course, this is all assuming I understood our Advisor, but I think I do. We were hoping that we wouldn't even really have to worry about filling out the Land Trust paperwork, and we could use your option #1, where we call the escrow company before closing and tell them that we've decided on the vesting, and Title will be "Mr. End Buyer." However, the bank that owns the house that we tried to put an offer on today requires the first 5 pages of the Land Trust to be submitted with the offer, so we are working on filling that out and having it notarized so we can place the offer tomorrow. Since we are not certain of who our end buyer will be yet, our advisor suggested that we choose someone we trust to be named as Trustee, with us as Beneficiary. When we know who our end-buyer is, we change the Trust so that they are the Trustee and have it notarized. Then we simply add an Addendum assigning our Beneficial Rights over to the Trustee. Does any of that make sense or sound familiar? If you have any advice for clarification, we could really use it!
This land trust is getting trickier and more confusing by the minute. It sounded so simple the way Kimmy laid it out. If your coach says that WE are the beneficiary of the trust, that means that we have to name a trustee as you say (like a family member or anyone we trust). In this scenario, say I make my daughter the trustee and I am the beneficiary, that would mean that my daughter, as trustee, would hold title to the property and I as beneficiary have the rights to do what I want with the property such as selling it.
So upon selling the property, as beneficiary, I simply transfer the title to my end buyer at closing and he "CHANGES PLACES" with my daughter as the new trustee. He will now own title/deed of the property and since the trust gets dissolved there is nothing left for the end buyer to do. He simply now owens the property.
Your scenario above says that the end buyer becomes BOTH the trustee and beneficiary which I am getting hung up on (it is late so I may be missing something here), but I don't see that happening.
HOW'S THIS FOR AN IDEA....have your coach that has done these land trust deals send you an actual land trust that he/she has completed filled out with all the players names including the addendum as well.
I think this will make this matter crystal clear.
Regards,
Neil
Last night I listened to Jeff Adams teleconference and he was telling exactly how he uses this land trust method with auctions and REO's. I was getting it until he said after assigning over then you close in your end buyers name. That means there must be another contract involved when your end buyer has to close in his name. I guess I should find out what other contract is involved in the final close when it changes hands to be closed with the end buyer. Do you know which contract Kimmy? I don't want to leave my end buyer/investor hanging. He needs to know wxactly before putting up his $$$.
"THE ARCHITECT OF YOUR DESTINY IS YOURSELF"
"SUCCESS WALKS HAND IN HAND WITH FAILURE"
We have a call in to our coach this morning. When he calls I will definitely ask him if he would send me a copy of a trust he has used. As I understood it, the Beneficiary is the one who creates the trust, and they pay the Trustee a fee (see page 4 of Kimmy's trust, section 7: Compensation of Trustee) to manage the land (in this section, we would enter some nominal fee, say $10). I believe that the Beneficiary OWNS the land, but a land trust is a way to create anonymity for the beneficiary. That is how land trusts have traditionally been used. For our purposes, however, I think we are Beneficiary, and our end-buyer is Trustee. Then, after we get our assignment of contract fee, we sign an Addendum to the Trust to assign or transfer rights to the buyer. One person cannot be BOTH the Trustee and the Benificiary, so the Trust is then essentially dissolved and the end-buyer is owner of the property. Since I don't yet know which of our buyer will be the end-buyer for this property, I can put my daughter's name as Trustee for now and change it when I have the name of the end-buyer. I will make sure that I have this correct when I talk to our coach this morning, and I will update. In the meantime, if anyone out there knows more about this, we would love to hear.
You will be the trustee, you will do an "assignment of beneficiary" to your end buyer AFTER he pays you your fee and provides proof of funds. There is no one way to do the land trust. You have many options, that's the beauty of this whole thing. I talked to the same advisor and he told me the same thing. The problem with you and I is that we live in California and the majority of investors and attorneys don't have a clue about land trust. So, we are making the end buyer feel more confident about letting us close as the trustee by giving them the "assignment of beneficiary." Now they hold something tangible in their hand that says they have equity. Doing business this way is a trust issue (no pun intended)
, so we want to make sure our end buyers feels like they can trust us. As far as the coaches suggestion about making you trustee and beneficiary, that sounds like a good plan. Then you give your 'assignment of benefit" to the end buyer OR there is another option, that I just learned about yesterday. You make your offer using your name and DO NOT USE the LAND TRUST METHOD. Instead, when you find your end buyer you tell escrow that you want to add a person to the title. You both close on the property and after escrow closes you quick claim the deed to the end buyer. End of story.
You are soooo right about NOBODY knowing about Land Trusts in CA! It's crazy. They really seem very simple, but everyone we are dealing with keeps trying to confuse everything. I REALLY like your new strategy. Just add a person to title before closing, then quick claim the deed! That sure seems easier, especially here in CA where none of the realtors or lawyers know anything about the land trusts! I assume that escrow would have no problem with adding another person to title, as long as we are still there. And Quick Claiming the deed to the end buyer is easy, too, right?! We could even create some kind of contract, just between the end-buyer and us, that guarantees that upon payment, we will sign our rights to the property over, if the end-buyer is uncomfortable with both names on title at closing. Thanks for the update, Kimmy!
I think the second method sounds good too. Once I get my first deal and I have some money, I am definitely getting my S-Corp set up because I do not want my name going on all these titles. This way the corp. is listed on title and not me.
Hi Kim. I just spoke with the advisor. He said that doing the trust either way is fine. He puts himself as Beneficiary and the end-buyer as Trustee because it's safer for him. That way, he doesn't assign beneficial rights over to the buyer until he has his fee. When he assigns beneficial rights over, the end-buyer becomes Beneficiary and they assign a new Trustee. The Beneficiary of the Trust owns the Trust. BLAHHHH!
I REALLY wish we could just make our offers with and/or assigns. It would be soooooo much easier. Also, he said we need to have a bank account set up for each trust, which means we need to have money in each of those accounts. Our goal of making at least 2 offers a week from here on out means that we will need at least 8 bank accounts opened a month. We don't have money to do that! Did you open up a bank account for your trust? I think we are going to make our offers just under our name and try out your second scenario of quick claiming the deed. Just seems alot cleaner.
We tried to set up our S-Corp 6 weeks ago. California is such a pain in the rear in sooooo many ways. We paid the $800 and filled out all the paperwork and were assigned a name: 5 H Enterprises, Inc. We THOUGHT we were done, but CA being CA, they came back and said they didn't want us to be 5(space)H because there is a 5(no space)H Enterprises already. Well, it would have been nice of them to tell us that before assigning us our name and EIN, because we have ordered 1000 and given out about 100+ business cards under 5 H Enterprises. Now we have no idea what our business name will be. Our next 6 choices were unaccepted, too. It's really frustrating. But I do agree that having an S-Corp is essential. We don't want our family and our (meager) assets jeopardized in any way.
Thanks for the tip about the REI meeting, too. It seemed odd that he never returned ANY calls. Hope to see you Thursday.
Interesting. I used a proof of funds letter from coastal-funding.com and that was it. No one asked for any bank accounts.
You don't assign the beneficiary to your end buyer until he pays you your fee.
Oh man, I wish we knew each other earlier. I have done so much research on corporations it's ridiculous. I found a super cheap group called amerilawyer.com and they charge around $300 to file everything and that includes the state filing fee. There hope is that you continue to use them. Email or call me before you guys spend anymore money. I've done all the research and I can save you a lot of money. My problem has always been taking ACTION. That't not my problem anymore, thankfully!
I wish we knew each other earlier, too!!! You definitely are very knowledgable! I was wrong, we paid $100 to file our S-Corp, and the State of CA charges a yearly $800 Franchise Tax. (That's where I got mixed up). I think the State Franchise Tax is like $30/year in other states. CA is so unfriendly to small businesses.
When did you join the Academy? Our join date was Jan 20, so it's been about 7 weeks, I think. We have learned so much in those 7 short weeks, it's incredible. But I feel like we still have sooo much more to learn. You have clearly done alot of research and really sound like you know what you are talking about. We made a personal goal of making our first deal by the end of March, so we are really motivated to get these offers in. It's really scary filling out the offer. I'm sooo worried that I'll do something wrong. Were you nervous when you filled your offer out? Or did you feel confident enough that you knew so much? I'm really working through my fear and trying to not let it paralyze me!
I was so scared signing that paperwork I had to change my underwear after I was done!
It took me over an hour to sign and inital all the spots. Not because it was lengthy, but because I was afraid. I looked at that paperwork and thought "What if I am wrong? What if I did the FMV comps wrong? What if I lose my earnest money?" Then I said, "Kimberly, you need to stop making excuses! What is the worse possible scenario? I lose $500. I can spend 1/2 of that going to the movies and eating out in one month! If I lose the earnest money, at least I lost it trying to better my life and taking one step forward towards my financial freedom!" Once I signed the paperwork (which litterally took 30 seconds), I was on cloud 9. I felt so good that I broke through my fears and took ACTION! My goal is one a month for the next 2 months and then I have summer off and I want to crank 1 per week out.
Which one Inc or LLC corporation is better for deals with Land of Trust ?
S-Corporation and then you have LLCs underneath the S-Corp. It allows many tax advanatages.
We made our first offer yesterday and it took us over an hour to fill out the paperwork, too! We kept making mistakes, like signing on the seller's line instead of the buyer's line, so we would have to re-print that page and start over. Then, we needed a special CA Addendum form to add that we wanted it contingent on buyer's partners inspection, and it took FOREVER to get that addendum from our realtor, etc., etc. Plus, I kept questioning the FMV, that maybe we had calculated wrong or used bad comps. It was soo STRESSFUL! By the end I just wanted it DONE!! Plus, somewhere in the middle we found out that the property we were putting an offer on was Fannie Mae and that they have not budged on the price since January 2008. They are asking about $500 below current FMV and the place needs to be gutted and started over. So we were thinking, why even bother with this offer? In the end, we decided to use it as a learning experience and to just put in the offer. The worst that can happen is they counter offer. Hopefully each time we fill it out we'll gain confidence and get faster at it.
Hey Kimmy can I use this same strategy on homes that are not owned by the bank as of yet, but are currently listed through agents.The land trust strategy. My plan is to look at these homes and still go ahead and place low offers on these homes before they get to acution. I believe some of these people will accept low offers. I have noticed that these homeowners have there homes listed at prices that are too high. An agnet told me this too. But also another agent told me that. He will never accept a contract that has and or assigns on it. Then he proceeded to tell me that wholesaling is dead. After last week he told me he was all for it and that he just wholesaled a few homes himself. He also told me that he only works with investors. I dont know, something really strange with this situation. But I don't care I am going to make offers directly through the listing agents of these properties. This guy also told me the only way to make money was to get a license. He was also trying recruit me as an agent.
Kingjuss,
I got my mind made up.....
www.Kingjussinvestors.com
www.jussinvestors.com (buyers site)
As I am going through my beginning stages of investing, I am finding it more and more interesting how agents behave. 95% of them have no clue what they're talking about and make up things as they go along. Wholesaling is NOT dead! I have a local wholesaler in my area. He has been wholesaling since early 2007. He had to change his strategy from buy, fix and flip to wholesaling because of the market. Anyhow, the guy is averaging 5-10 deals a month at approximately $10k to $13k a pop. Wholesaling is not dead, the rules have changed. That's it.
You can use the land trust method on any type of property. From the sounds of your post, it sounds like that you're going to be working on short sales. If yes, be aware that you could be waiting 3 to 5 months before closing on a deal. My suggestion is to put up bandit signs and get the sellers before they go to the bank and hook up with an agent. The time frame is the same, but you won't have any competition because the property won't be listed on the mls. The problem with listed short sales is that they're on the mls for everyone in the world to see. Banks sit on the offers, hoping that another higher offer will be submitted. You could be literally days away from closing and then have them tell you that they've accepted a higher offer. If you have a lot of short sales in your area that have been sitting on the market for 200, 300 or more days, smile my friend. Starting this summer, you're going to have an influx of banked owned properties hit your market. My suggestion is to hook up with a few of the agents who get the inventory. Tell them that they can keep all 6% of the comission because you will let them represent you as the buyer. If you do enough deals with these agents, they will call you and tell you about properties before they hit the mls. By the time everyone else knows what's going on, you will already have your offer accepted and be closing the deal.
Ok some of the houses listed with agents are short sales. I don't want to get in to the short sales. But I still will probably put offers in any way. I have nothing to lose. but some of the properties I speak about that are listed with agents are in default on there loans and are trying to sell there house. I have spoken to about 3 home owners and I know there situation. But they want me to go through there agent. So I will. I will just place low offers through there agent. Either they will accept the offer, counter or turn down. I am 100% ok wth that. But I look at it like you never know. These home owners have relisted there homes with other agents and there homes have been on the market more than 100 days. Let me know what you think.Agents have to put the offer forth by law. Thanks. Everyone has got you busy ever since you put that thread up.
Kingjuss,
I got my mind made up.....
www.Kingjussinvestors.com
www.jussinvestors.com (buyers site)
If you have the patience, I say go for it. Like you said what do you have to lose? I thought NOD property was still short sale property. The banks have been put on notice that the seller can't afford the property, therefore the bank is approving them to sell the property for less than what is owed on the loan? I could be wrong? Do these people have equity in there property? Your agent should be able to look up tax records for you. It will show the last sale of the house, and any other mortgages. Then you will have an idea of what you're working with.
Hi there! Hey, thank you guys for posting all this information! You are VERY inspiring!! I wanted to ask both of you - how far under FMV are you offering? I know you're in Cali - can you give me an idea of the typical asking prices or FMV's in your area? I'm up in Portland, OR and getting very hung up on the high (to me) asking prices and how much money there is in every 10% price reduction! LIke on a $400,000 house, every 10% below that that I offer, that's $40,000 LESS for the seller. I guess I think it's going to seem like a bigger deal to them, than the same percentage discount would on a $100,000 house. Just wondering if that's your experience, and how far below FMV you're offering.
Thanks!
Tracey
You have done your homework thoroughly! Just wanted to know if the S-Corp w/ underlying LLCs structure has the same tax advantages in all 50 states?
Hi KimmyJ! Another great post! Very Inspiring ! ~Bob
I just want to say thanks for the insipiring thread. I was especially interested in reading your post about being afraid of submitting the offer. I am petrified! I'm so scared of screwing something up, the wording or whatnot and not finding a buyer and getting stuck with a property I cant afford. That's the biggest thing holding me up right now! I feel better knowing I'm not the only one feeling this way and seeing others moving past their fears shows me that I should too! So a big THANK YOU!
the less you experience fear. My biggest hang up right now is talking to motivated sellers. I dread the phone calls, but I keep pushing myself. My fear is that I am going to sound dumb. When I first started putting in offers with agents, I felt the same way. However, after talking to a few of them, I realized the agents are CLUELESS when it comes to investing, so I had to get real demanding with them about my offers. Now I don't fear that. So, I figure after I talk to some more motivated sellers, I'll get over that fear too.
I love this idea of using a land trust. BUT has anyone actually successfully closed on a property using this method??
I'm about to put an offer on a Lis Pens home. Not sure whether to use and/or assigns or Land Trust. If I do one (assign) and they turn down...can I resubmit with the other (land trust)?
Thanks,
rachael
First off, I'm investing in CA. So lets say I made an offer as the "123 Main St Trust, My Name, Trustee." The Bank accepts. I find an investor names John Smith who wants the property. On my trust, I am the trustee and beneficiary. I collect the assignment fee and John and I both sign an "Assignment of Beneficial Interests" agreement. So at this point, do I call up the title company and tell them to switch the buyer's name from "123 Main St Trust, My Name, Trustee" to just "John Smith?" Or should I have the title company switch the Buyer name to "123 Main St Trust, John Smith, Trustee? Either way, do I have to show the Title company a copy of the Trust declaration and/or the "Assignment of Beneficial Interests" agreement?
This is my second post...the information and willingness to share on this site is awesome!
Elliott