Using Land Trusts in Real Estate Investing
A land trust is a pass-through entity that becomes the owner of a specific property. For this exercise we will only discuss the ownership of real property, specifically real estate. These documents are much hated by Realtors, lawyers, lenders and municipal governments to mention a few, but loved by real estate investors who understand them.
A land trust is a simple document which becomes the controlling or holding vehicle of a specific property. Its life span is limited to the term imposed in its internal clauses and extinguishes itself if the property is sold. Essentially, one property in, same property out and poof, the trust no longer exists!
The trustee of the trust administers the day-to-day financial dealings of the trust, but the owners are called the Beneficiaries. The trustee may or may not be the trustee. The trustee must be an individual; the beneficiaries can be individuals, partnerships, corporations, LLCs or other different type entities.
Trusts are hated by lawyers because they don’t make as much money on them as they do with LLCs or corporations and they are most commonly used to convey property by transfer of the beneficial interest without doing a formal closing.
Realtors don’t understand land trusts and because of that, they tend to believe they are illegal. Because they are not taught about them in real estate schools and various state regulations can vary about the actual administration and legalities of them.
If a buyer of a property is a land trust, Realtors care less because a sale is a sale. If the seller of a property is a land trust, the closing agent must understand how they work or these deals can be harder to close.