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
You are only the trustee. Your investor will be the beneficiary. You sign the paperwork as Elliot, trustee, exact vesting to be determined at close of escrow. Once your offer is accepted, you immediatly find a buyer. Get your assignment fee first. Call escrow and tell them that your partner wants to take title instead. If they say yes, fax over his information with proof of funds. If they say know, then you close on the property as trustee using the investor's money. You make him the beneficiary, so he knows he getting something since your name is on title. After escrow, quit claim the deed to him and the trust is now voided and the investor owns the property.
KimmyJ,
Thanks for the response. I'm wondering, when you make offers to the bank, do you include a "subject to interior inspection" period? I know another investor that doesn't even offer this, just so his offers are more competitive.
Elliott
I don't have a big enough buyer's list at this moment to be able to cut my inspection period down. I need as much time as possible, so I make sure I have a 17 day inspection period. If you can lessen the length of the inspection period or eliminate it or close escrow faster, than the banks will be more willing to accept your offer.
So Kimmy,
Please let me know if this is the breakdown ...
I find an REO prop
Offer 30-50% below fmv
Complete the NJ state P&S Contract.
Under buyer: Mid-Atlantic Property, LLC, Trustee, vesting TBD at closing. Under financing show a POF from coasting fund for the offer price of prop. (Do i need to have the POF to submit offer? If so, does it need to show Mid-Atlantic Property, LLC, Land Trust)
Under addendums, attached an exit clause "subject to 30 day inspection or subject to partner approval", which will allow me to get out of deal if i can't find end buyer.
Under earnest money show that $500 check will be provided within 48 hours of acceptance (can check be under my company LLC name or does it have to be under the newly formed LT name?)
Sign P&S contract (do i sign end page using my own personal name?)
Then i hussle to find an investor, show prop and get it ready to assign.
I then contact escrow and tell them that i want to change name of who is taking title of prop. If they accept, i then give them investor's name and POF AFTER i have my assignment fee money from him. What document to use to show this transaction between you and end buyer? An assignment of contract?
If the escrow company says no, because in order for them to insure title the same buyer's name must be on all critical docs (p&s contract, financial information and title), then i go to option two:
I then have to complete/form the land trust forms, with me as trustee, and the investor as beneficiary, i would give investor a copy of LT paperwork and maybe even sign some kind of agreement with them stating that they are going to be paying for prop with their own funds, they are beneficiaries of prop and immediately after closing we will quit claim deed, dissolve LT and they take ownership of prop under whatever name they want.
How do you dissolve a LT and who pays for the Quit Claim deed?
Now, in addition to my questions above, i also have questions regarding our assignment fee. When doing a regular assignment of contract, we get paid our fee when/if the prop closes and check our check at closing. However, with a LT you refer to getting paid first and then either chaning name of title owner or assigning beneficiary .... in any case, what if the end buyer after doing and finalizing their due diligence on prop comes across a problem and decides not to continue with purchase (eg: under ground oil tank that has leaked 1/4 mile!). Do you still keep your cash?
Just to let you know, my attorney told me to look into doing LLC's too, but i am venturing more towards LT, if i can get the story straight on how to do them!
Thanks for your knowledge and wisdom ... we shall learn!!!!!!!!!!!!
Mati
Live life today, because you never know what tomorrow can bring!
ive been following this very useful thread by you and kimmy and still learning, but why would you make an offer only 5oo. below fmv? are you assigning or hold and flip?
Making a difference in others lives, is rewarding in so many ways
Hi! Actually, our offer was 60% BELOW FAIR MARKET VALUE, which we calculated using comps. We normally would start our offers at 50% below FMV, but this place needed soooo much work, we went lower. What I was saying was that the bank (Fannie Mae) had an ASKING PRICE just $500 below the calculated FMV, which was CRAZY considering the amount of work needed and the length of time on the market.
Sorry if I didn't make myself clear in that post!!
By the way, that offer wasn't accepted (as expected), as they claim there is a 2nd on the house and they will not take less than asking price. We plan to watch the property and make another offer on it in a month or two. The end-buyer we had in mind for the house loves the area and can handle any amount of repairs, so...we'll see!
Does the bank own the second? If the bank doesn't own the second then you're getting some fishy information back from the listing agent. California law states that the first mortagage trumps all other mortgages. To my understanding, if the house is bank owned, then the second mortgage issuer is out of luck. They're only recourse is to go after the original owners for payment. So why does the bank care if the second mortgage holder gets their money?
Yes, that's exactly what we were thinking. Something FISHY... I'm sort of thinking that part of it was our wimpy realtor, but also that it's true what I've heard that Fannie Mae doesn't negotiate. They seem to be fine just holding on to properties for a long time. Oh well. There are soooo many properties out there!! Our problem is that we need a realtor....Still working on that!
KimmyJ and 5H do either of you use an agent to fill out your offers or do you do them on your own? Also, when signing the contract do you sign using your personal name or put your LLC or S Corp as signer.
Thanks for all your help.
Kimmy is a land trust deal, One of those need a special title company
deals! Not to say, I like your thinking...And i am done with FAQ!
I think FAQ's is great for awhile but sometimes you just have to
(GRAB THE BULL BY THE HORNS)!
Randy
"MAKE YOUR ACTIONS COUNT"
It depends on what you're going to do. The purpose of the land trust thread was to help everyone get around the no "and/or assigns" deal that the banks have. You do not need to have a special title company to do a land trust. You cannot use your LLC or S Corp if you're going to use a land trust in the wholesaling method. If you wanted to use the land trust for privacy in regards to a piece of property you were purchasing then you could use one of your corporations, but the process is different. The corporation purchases the property, your name stays off title, then you do the land trust with a trustee (who's name will be on title) you are the beneficiary. To the world it looks like your corporation bought the property and then sold it to your trustee. They have no clue that you're the beneficiary.
Thanks for the prompt response. Is there another method i can use my LLC to utilize this method. I've been trying to work reo's, but my personal credit always come into play when they ask for proof of monies upfront. Is it illegal to put a LLC on a land trust. I don't see why it would be a problem. Either way I just need my LLC to start producing income.
You do not need to have an LLC to start making money. I'm $100k in debt between school loans and credit card debt. You have to be creative. Try coastal-funding.com for your proof of funds letter. You make your offer with you on the title. Have an out clause like subject to business partner's approval. Find a buyer, add them to the title. Have the end buyer use their money to close. After escrow, quit claim the deed.
Hi Kimmy,
I am reading over this thread again because it just blows me away how we can get around the the bank! This is HUGE!
We are about to put some offers in on REO's and were worried about the assignment but this sounds like a great way to do it! Is this what you did for your offer? Have you had any response yet from the bank? Also did you put your earnest money down now or just a copy until it gets accepted?
Thanks,
Niki
I'm in the same debt situation you are. It's tough to get out of the cycle and there's always an excuse or out that newbies look for. We just want all situations to be perfect and in reality they never will be. So we make excuses on deals and ask to be walked through deals. I guess the only way for me to learn is go out there and put homes under contract.
IPersevere... you just have to go out there and TAKE ACTION! There will NEVER be a perfect time. The first offer I put in, the agent made me feel like an idiot, but I said, "Do it!" It's what I wanted not what the agent wanted. I have not had an offer accepted yet, but each offer I put in, I get more and more experienced. The worst case scenario is that you end up wholesaling a house. If the offer isn't accepted, at least you gained experience.
RNRinvest I used a copy of a check. You don't give them the earnest money until they accept your offer.
Kimmy i say again,GREAT POST!!! Privacy, I am quoting "Wikipedia"
Privacy...is the ability of an individual or group to seclude them
selves or information about themselves SELECTIVELY and so on!
Works for me!...I am no more emotion (That is something i have to ?)
You can pick up the stone,OR Just walk around it!
Randy
It is so true, that with each offer we submit, the more comfortable and confident we get. We haven't had any offers accepted, yet, either. But that's not the point!! The point is, we are DOING IT (like Anita says
) We are making offers and doing the footwork and the research. I can't believe how much easier it has gotten, doing that part. That first offer took FOREVER!!! The last two only took about 10 minutes. Now if we could just get a new realtor and get back to our plan!! 
bringing it back to the front for the posters that have asked about this this morning
Anita
******************************************
TWITTER - anitarny / FACEBOOK - anitarny
"FAILURE IS NOT AN OPTION"
Someone mentioned not to use your name on the Land Trust, instead use the property address. Will the bank or escrow company accept this. Don't they want to see actual names on the document?
You will be taking title as Ruby Lastname, trustee exact vesting tbd at closing. As far as the land trust is concerned you use the property address as the land trust name... 123 main street trust.
Hey Everyone - In one of these threads, I asked one of you guys to list the banks' REO websites and I can't seem to find it any more.
I know this is a bit of a nuisance, but if anyone runs across that post, can you point me in the right direction. I know that a lot of us visit the same threads, so I was wondering if you guys can help me out.
Thanks.
When you leave a copy of the check do you void it or leave blank?
I leave space at the beginning of the check line and then write "escrow" towards the end. The bank only gets a copy. Escrow does not receive a live check until the offer is accepted. Then a write a "live" earnest money check to escrow.
When forming a land trust to use as BUYER of a purchase and sales agreement, i was told that the trust NEEDS TO HAVE a trustee, beneficiary and a bank account to make it a legal trust account. The trust name would read something like 123 Main St Trust, the trustee could be your attorney or a friend and the beneficiary would be you ... until you find an end buyer, then you would "transfer beneficiary rights" to them AFTER you have received your $$$, taking you out of the trust. You would then need to contact the bank to let them know that you are removing yourself as beneficiary and ENDBUYER is new beneficiary of trust.
Has anyone actually done a deal this way?
Mati
Live life today, because you never know what tomorrow can bring!
I like this land trust strategy and I will be doing it when one of my offers get accepted.
"Work hard Play Harder"
What do you mean by "add them to the title"? I have a familylooking for a property now, they do not have cash but are pre approved for a home. I want to look at all options for them, including REO. Are you saying to put "name, trustee, exact vesting tbd at closing" or just name and add them at closing? Do I have an excrow company right now or after I purchase the property I can find one? Thanks for everyones help!
"Faith is the Substance of things Hoped for, the Evidence of things not yet Seen." "Hope Till Hope Creates!"
Does a Land Trust or Revocable Trust (for that matter) protect your future investments, from creditors (coming after to collect), if you had a recent foreclosure and/or declare bankruptcy in past year(s)?
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In the name of Allah, the Beneficent,
the Merciful.
22.He is Allah besides Whom there is no God: The Knower of the unseen and the seen; He is the Beneficent, the Merciful.
23. He is Allah besides Whom there is no God: the King, the Holy, the Author of Peace,the Granter of Security, Guardian over all, the Mighty, the Supreme, the Possessor of greatness. Glory be to Allah from that which they set up (with Him)!
24. He is Allah: the Creator, the Maker, the Fashioner: His are the most beautiful names. Whatever is in the heavens and the earth declares His glory: and He is the Mighty, the Wise.
Hey Kimmy,
Thank you for your great posts on land trusts. I'm dealing with a bulk REO intermediary at the moment. Bulk REO's are new to me. The deal itself looks incredible though. Here's the link to my string of posts.
http://www.deangraziosi.com/real-estate-forums/buying-foreclosures-reos-...
Sounds like you have some really solid REO experience. Would love to get your take and let me know if you ever do any investing outside of CA. (I'm in Florida)
Thanks,
STeve
Real Estate (Single Family and Multi-unit)
Areas: Fort Lauderdale, Florida
Wish everyone success.
A lot of questions have been thrown in and has made the thread a little confusing.
From what I am understanding is that you put in the offer as:
123 main st.,trustee(would my name go here?),exact vesting TBD at closing
If this is correct, thanks for the post because i got it. If not, please correct me. As far as the earnest money. I have no money to spare on this but my question is, can the check be cashed later like on the day of closing or something.
And when I send in my POF letter with the offer, do I put the same as I did on the offer(ie.: 123 Main st.,trustee,exact vesting TBD at closing) on the name line on the POF?
Thanks again for the post
Go For The Gold
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