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 everyone, there seems to be alot of confusion so I am going to try to clarify this for you in a couple of sentences.
1. When you write up the contract, you have the agent write on the line that says this offer is from... Joe Investor, trustee exact vesting TBD at closing.
That's it. You don't give them any documents, you don't even fill out a trust form.
2. You sign all your documents as Joe Investor, trustee.
3. You give the escrow company your earnest money deposit. It does not need to be on special checks. It can be from your checking account.
4. You find your end buyer. You call escrow and tell them "You know, my partner and I were discussing this and he/she is going to take title for tax purposes. I am faxing over their information, their POF and a letter from the both of us stating that we are not doing the trust."
Keep it simple.
5. If the escrow company says, "No way." Then say, "Okay." You take title as trustee. You make your end buyer the beneficiary. You close with your end buyer's money. After closing you quit claim the deed. The trust is voided and your end buyer owns the property.
Hope this helps...
KimmyJ
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
Thanks for the response,but my question about the POF, and earnest check??
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Get your proof of funds letter from coastal-funding.com Use your name on the proof of funds letter. Not the trust.
Attach an addendum after the offer is accepted stating that you will provide the EMD at the end of closing. You will need a realtor that understands what you're doing.
Attach an addendum after the offer is accepted stating that you will provide the EMD at the end of closing. You will need a realtor that understands what you're doing.
Banks are seeing more and more of coastal-funding proof of funds. Some, not all are becoming wise to this because many who are using this proof of funds are not closing or using other less enjoyable / acceptable financing (bank financing) to purchase the properties. If you get rejected with a good competitive offer you may consider using other financing for your proof of funds with that particular lender.
However, one of the nicest items that coastal-funding gives is the ability to list your finance amount at any time to match the offer you are giving. This is nice.
If you would like the chance to work with me or one of my fellow real estate investor coaches and our advanced training programs, give us a call anytime to see if Dean's Real Estate Success Academy and our customized curriculum is a fit for you. Call us at 1-877-219-1474 ext. 125
I understand how this works, thanks for explaining it. I just have some itching questions...
1. I would want my LLC as the trustee right? so that I can list the assignment of the trust fee as income for my LLC? How do I do that? You mentioned a few places to use your name and not an LLC, why?
2. How do you get paid? Don't you need some record of being paid? Is there a signed agreement or such stating that you are turning over the trust (or dissolving it) for $5,000 or something? How does the payment of the transfer occur?
Really all I need to understand this is more detail from the point of "find a buyer" and the getting paid then calling the escrow/title company.
So I've signed the contract; found a buyer; got paid (How? what documentation); called escrow to put buyers name on title, not mine; Then do I even need to go to the closing table?
If the title/escrow comp. says "no" then I need to: get paid (again How?); complete the trust documents, use the buyers money to close; then dissolve the trust? What documentation do I need to do this?
Is that right?
Am I making sense?
Thanks for the answers!
-Damon
1. I would want my LLC as the trustee right? so that I can list the assignment of the trust fee as income for my LLC? How do I do that? You mentioned a few places to use your name and not an LLC, why?
2. How do you get paid? Don't you need some record of being paid? Is there a signed agreement or such stating that you are turning over the trust (or dissolving it) for $5,000 or something? How does the payment of the transfer occur?
Really all I need to understand this is more detail from the point of "find a buyer" and the getting paid then calling the escrow/title company.
So I've signed the contract; found a buyer; got paid (How? what documentation); called escrow to put buyers name on title, not mine; Then do I even need to go to the closing table?
If the title/escrow comp. says "no" then I need to: get paid (again How?); complete the trust documents, use the buyers money to close; then dissolve the trust? What documentation do I need to do this?
Is that right?
Am I making sense?
Thanks for the answers!
-Damon
1. Yes you can sign Company Name, trustee in title. When you sign documents, you sign Company Name, Trustee and then underneath sign Damon Investor, President (or whatever title you gave yourself.)
2. After reveiwing the end buyer's proof of funds (they will need all cash), you have a couple of options. First, you always get a % of your fee up front. You don't want them thinking they can walk away from the deal without losing anything. If your fee is 10k then I would request at the very minimum a $1000 nonrefundable deposit. Once you get them on title and you're off the title then they give you the rest of your fee when they sign the letter stating that they want to be on title. If you have to close on the title and actually do the trust, then you close with their funds and once you give them the quit claim deed you get the rest of your fee. The idea is to get them on title, get your entire fee and walk away.
3. Forms can be found on DG website under forms and docs on the left bar.
Below is an example letter to give to your escrow company. This letter came from a local investor named Kurtis Squyres.
To Whom It May Concern:
Please find attached the trust agreement outlining the relationship between the original vesting (Henry Wholesaler Trustee) and the revised vesting, Bob Buyer (or Bob Buyer’s vesting) for the purchase of 123 Main Street.
The trust was formed to facilitate the acquisition of the property. Henry Wholesaler was the trustee for the title holding trust, whereas Henry Wholesaler was to be the buyer of the property.
However, Henry Wholesaler has decided that the original title holding trust is not the optimal manner in which to take title for investment reasons, therefore Bob Buyer will not be be using the trust to hold title on this property, it no longer requires Henry Wholesaler to act in the capacity of trustee.
Attached please find the proof of all necessary funds for Bob Buyer.
Also please note that Bob Buyer has funds ready to wire immediately and we can close as soon as the seller is ready for us to do so.
By _____________________
Bob Buyer
I confirm that I was the intended trustee. Since the trust will never officially be created because it will not become funded with the property, I hereby relinquish all trustee’s duties and resign as trustee. Consider this full authorization to proceed with vesting in the name of Bob Buyer
Sincerely,
By: _____________________
Henry Wholesaler, Intended Trustee For Main St. Trust
Is there another transactional funder like coastal-funding who provides a free POF letter? I like many others probably wouldn't qualify ( I know I definitely wouldn't) with a conventional lender e.g. Wells Fargo or BOA let alone a HML if they're running running a credit check. How are we suppose to get around requiring a pre-qual letter or POF letter for lender to take our offers seriously? I'm not working Real Estate by owner market; properties sold here are mostly other RE investors selling the inventory they've acquire from Lender's as a REO (which may or may not require rehab).
"I will NOT BE BROKE! ANYMORE!"
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.
Thank you KimmyJ7601.
That was very informative and helped a lot.
I still have the question of how do you document that you were going to get a total of $10k for doing this? This isn't just a hand shake and a check under the table right? There has to be some kind of document stating that you are getting $10k less the $1k deposit right?
How do you document your "fee" of signing away the trust and the deposit?
Thanks,
-Damon
In a land trust do you still put a clause in the contract stating that after the 14 or 30 days the contract is up or do you just have to buy it then? I feel like the bank won't accept it with a clause like that.
Success and Nothing Less!
I don't know what state you live in, but in California there is a standard 17 day inspection period. If I can't find a buyer I will use the inspection clause.
Oh okay cool! I live in Oklahoma, do you know where I could find this out? I plan on e-mailing a few real estate attorneys tonight as well.
Success and Nothing Less!
A real estate attorney or real estate agent will know what the Oklahoma law is for home inspections. You could also try googling it. Oklahoma and state home inspection laws.
Keep in mind that when you are dealing with sellers themselves, you can write whatever you want in your contract as long as the seller agrees to it and signs it. There is more flexibility in FSBO.
KimmyJ
Thank you very much Kimmy for this invaluable strategy. I would like to do this as I have found it difficult to find FSBO pre-foreclosures. What would be some of the risks to be aware of when doing this activity?
I also could use some insight in obtaining funding through a lender such as Coastal. It seems they want a proof of funds letter from the end buyer before they will provide a proof of funds letter to the wholesaler. How would I approach something like that to potential investors? Any tips?
Edit: Actually it seems I may have misunderstood this. I can obtain a pre qualification letter from Coastal for free if I understand correctly..
I'm ready to get started, but just want to make sure I'm doing all of this correctly and will not get myself into any serious trouble.
Coastal-Funding is used for "flash" funding only. That means you would have to arrange a simultaneous closing. If you're going to go that route than I wouldn't even bother with the land trust. I would find a title company, like Chicago Title, that does simultaneous closings. You put your offer in using the coastal funding letter as POF. You will close on the property with coastal's funds meanwhile your end buyer is at the closing with their funds. You close on the property and 2 minutes later the property is sold to your end buyer. The funds from your end buyer pays coastal back and you walk away from the table with a check from the left over money.
You do not need to set up an LLC to use either strategy.
sorry for the double post..
Thank you very much for your response Kimmy. After reading through Coastal Lendings website a second time I understood that nothing was required for the POF letter, only for the double closing. I also understand the rationale behind doing double closing i.e. hide the assigning activity from the buyer and seller but I do appreciate your suggestions on that.
I am nearly ready to begin with making offers on REO properties, however I would like to know with which method have you have had or believe will have the highest chance of success. Are you pursuing the land trust route or are you working with the "add another buyer to title in escrow" route? Any insight will be greatly appreciated.
I am also ready to begin making offers because I have my eye on a few. Unfortunately, I'm stuck on exactly how to make the offer. I would prefer not to use a REA so I don't have to pay commission. How can I find out a way to contact the bank's REA to make an offer. And when it comes time to make an offer, how exactly do I word it?
Success and Nothing Less!
If you went by the property there may or may not be a Yard sign on the property; if there is one you can contact Listing Agent from the yard sign or get a hold of the Asset manager and they will refer to Real estate Broker handling that listing. If you use a REA agent the Lender will pay both their LA and your REA their commissiones (based upon the agreed upon commission split). You can submit the offer on a PA. The LA will review it (they should) before sending it on to the Lender's REO Asset Manager for their review.
"I will NOT BE BROKE! ANYMORE!"
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.
What does EMD stand for as posted above?
KimmyJ7601 wrote:
Get your proof of funds letter from coastal-funding.com Use your name on the proof of funds letter. Not the trust.
Attach an addendum after the offer is accepted stating that you will provide the EMD at the end of closing. You will need a realtor that understands what you're doing.
I've tried and failed, tried and failed, and again I try. Why don't I give up? I'm hard headed and I Will Succeed or Die Trying!
EMD is earnest money deposit
Thank you. Some times the smallest details in a posting can throw people for a loop.
I have studied this thread in great detail. It is packed with great information and I will definately apply this to the fullest.
I've tried and failed, tried and failed, and again I try. Why don't I give up? I'm hard headed and I Will Succeed or Die Trying!
Just submitted an offer with the land trust. All I did was put my name as: Luke Ward, Trustee, exact vesting TBD. I'll see how it goes!
Success and Nothing Less!
I am curious to know if REO wholesaling is possible in the state of Texas? or are they subject to the same guidelines as other states where banks will not allow property to be reassigned?
Thanks in advance all.
The LA informed me that they offered another offer this morning. I'm kinda disappointed and I somewhat don't believe him because of past conversations with the LA. He has always been short with me and even did not respond to a few e-mails. I will keep looking at the property though.
Success and Nothing Less!
Ask for a written refusal from the bank. That way the LA must submit your offer.
Does he legally have to show me since it was an informal offer through e-mail? Probably wasnt the way to go about it but I just wanted to get out there and make my first offer.
Success and Nothing Less!
If you can trust the guy and you know he is doing the offers verbally than that's fine. However, if is a property you think is a really good deal than you want him to submit it formally so you can get a written refusal. It's all based on how much you trust your agent.
Hi all,
I see a lot of discussion about land trusts (intervivos trust). There are great vehicles and valid in all 50 states. However, there are a couple states where you lose the benefits of a land trust (LA and TN).
You need to be careful of who is the trustee. A 3rd party trustee (a neutral entity) is preferred.
If you really want to learn about 3rd party, co-beneficiary land trusts, then I strongly suggest you immediately go over to http://www.LandTrust.net and check out their discussion forum. You will get ALL the info you can handle and more. The site is run by North American Realty Services (NARS) in Southern California. This is what they do. Bill Gatten is the grand poo-bah (president) and a SUPER individual.
He developed a method for effectively using land trusts back in the early 90s when the RE market tanked. His system is branded as either an Equity Holding Trust (EHT -involves 3 or more beneficiaries) or PAC Trust (PT - two beneficiaries).
Be sure to look for posts by a gentleman named Scott Moyes. He KNOWS his stuff and is very good with trusts.
And no, I am not affiliated with NARS. I am a member of their professional network and happened upon Dean's site while looking for info on other RE investing strategies. Then I saw this thread.
Hope this helps those of your with questions. Also, be careful how you give advice. You don't want to be seen as giving legal advice if you are not a lawyer (I'm not!)
Mark
http://www.GilroyHomesforSale.net
You must have been sent from heaven. Thank you for that sea of knowledge you have just given us. This is definitely one of the top tier wealth building strategies I've ever heard.
Has anyone close yet with this stragety. Is the forms for Land Trust under Forms and Docs.Is it"Buyer Land Contract." Thanx
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