Hey guys.
In this video, we're going to talk about whether or not you should buy real estate
in a land trust or limited liability company.
All right. Let's get started.
So this is that that that question, right.
That comes up so often with individuals.
Hey, I've heard about LLC is I've heard about land trust.
Well, I'm going to walk you through the differences between these two entities
at the end and going to show you what I think is my preference
when it comes to buying real estate, which entity I prefer to use.
And it's based upon 25 years of investing experience
and my own investing and those of my clients.
All right. So here's the thing.
Land trust, could you buy real estate inside of a land trust?
Absolutely.
You can buy real estate in a land trust.
Now, what are some of the benefits of buying real estate in a land trust?
Well, you know, there's no filing fees.
Okay.
When you when you use a land trust
because it's a private document, you set the document or set up the trust.
In fact, right before you make your offer, you can create the trust.
And then you can make the offer in the name of the trust.
So that's a positive number to if you set it up the right way,
you can have anonymity with your land trust.
And so that's a positive because if I'm buying property
and I don't want people to know that I'm the owner,
I don't want the tenants to know that I'm the owner.
Then, using a land trust with anonymity, it's a great way to go.
Another benefit of using a land trust is if you want to assign ownership.
Okay, so what do I mean by that?
Well, if you take title in the name of the trust
and you decide, hey, I want to move this the ownership of this trust out of me
being the beneficiary to an LLC or to a third party.
And I don't want anybody to know about it.
I don't want to record another deed to transfer title.
The property land trusts are great for that
because all you have to do is take the beneficial interest that you have.
Fill out an assignment form say I client coons hereby assign 100%
of my beneficial interest to X, Y, Z, LLC, or my son Carter.
Whatever I want to do.
You can do that when you have a land trust.
The third benefit there's there's no tax return
for setting up
a land trust and taking title inside of this vehicle.
So those are some positives of using the land trust.
Now, what are the negatives of using the land trust for for taking title?
Well, some of the negatives that come from using a land trust
stemmed from a lack of familiarity.
So you deal with people
who do not understand what this is because they've never seen it before.
So that can slow down the closing process.
You're dealing with a title company and, you know, this is a case of what we call
first impression for them.
They've never seen one before and they don't know how to handle it.
So they're legal.
Department gets involved and it can create issues.
So I think that is probably the biggest negative of using
the land trust is that lack of familiar already with third parties.
And that also extends to not only closing in title companies,
they extend to insurers where you need to get the property insured.
They're not quite sure as to what type of of entity you're using there. So.
So that's the biggest negative I see in using land trust for closing.
Now if we're looking at a limited liability company instead.
So we want to close in an LLC here.
All right.
So what are some of the benefits of closing or actually
hold on one other thing here.
No, forgot this.
No asset protection with the land trust just had a blind moment.
I mean, this is a stupidest thing, right?
I forgot to tell you this.
With the land trust, you have zero asset protection.
So if something goes wrong with that property and someone brings a claim
against the trust that's going to hit you as the beneficiary of that trust.
Because when you set up a land trust now own property inside of there
and I get sued or the trust gets sued as the property owner
that that claim runs to the beneficiaries of the trust.
Okay.
I had to get that down because this is the number one reason
why you want to set up a limited liability company.
One of the benefits is asset
protection with the LLC.
So if something goes wrong with the LLC,
you're protected from those claims associated with the property.
Now another benefit of using the LLC is similar to the land
trust you can assign ownership
with the limited liability company.
So instead of us moving the land trust over here, you're
moving the beneficial interest of the LLC to a third party.
With the LLC, you can either go no tax return or you can have it set.
You can choose tax status.
Okay, so I can choose my tax status for the limited liability company.
So if I want to have it set as a partnership s corp
or disregarded entity, I can do that.
Which in turn means
that in two of those elections I would have to file a tax return.
Now some people say,
Well, that's great with the land trusts, you don't have to file a tax return,
but there are benefits in certain situations to actually filing
a tax return for your rental property, especially if it's a commercial property.
Multifamily units, you want to be filing returns
on the entities that hold those because when you want to sell,
the underwriter for your buyer is going to ask for a copy of that return.
So so tax reasons we would look at the LLC now anonymity.
Well you can get anonymity with a limited liability company,
but the problem is you're typically going to have to use a two entity strategy.
So this kind of, you know, is like a positive
and maybe a negative at the same time because it's just not by default built
in in certain situations, you have to take an additional step to to obtain that
when you're setting that up.
And then another benefit of this is that
is that they're they're well known familiarity.
Okay.
That is when you're working with lenders, you're working with title companies.
We are working with insurers.
When you're using an LLC, they're available in all 50 states.
They've been around forever.
People take tile on them all the time.
If you said you own property in an LLC, not a problem,
you're going to get that deal done if you want to refi the property
using a non qualified mortgage, you're going to get that done a lot quicker
with an LLC than you will with a land trust.
Again, because of the land trust
lack of familiarity, you don't have that with the limited liability company.
So so I would go with that.
Now the drawback to using an LLC.
All right. What is that going to be?
It's going to be sometimes what we call costs
the investment that you have to make to get this thing set up.
Right.
That is, you're going to file with the secretary of state
in order to have the LLC.
So you just can't make an offer, a name of an LLC unless it's already created.
So from that standpoint,
it is some people see that as a negative,
but at the end of the day, if you want asset protection,
which I suggest you should be looking at, you're going to definitely
want to look at using a limited liability company.
So then the question comes down to should you take Title An LLC or a Land Trust?
What do you think my answer is?
Well, it's going to be limited liability company in most situations.
I know it sounds like an attorney. So here's the deal.
When you're buying property,
if it's a standard close or you're making the offer
and you don't have to come up with the cash
immediately, go with the limited liability company closing the name of the LLC.
It's simple.
Now, if you're buying property at auction.
All right, where you don't know if you're going to get the property.
So, you know, maybe your bid and you think maybe you go to the auction, come home
with two or three, three properties, who knows?
Well, using the land trusts, I think is a preferable route there,
because if you get the deal, you just draft up the trust right then and there.
I mean, it's simple.
You put my clients in this all time, you create the trust agreement,
you sign it,
you go and you make the offer, or you take title in the name of the trust.
So it's much quicker to do it that way.
Or if you think you're going to be close in on a subject to deal
and you don't want the lender to know about who the new owner is
because he could accelerate the note.
Well, land trust is going to make sense for those.
So if you're using auction properties, if you're buying subject
to an existing mortgage, then I'm going to go with the land trust
over the limited liability company in most situations.
The other situation I'd look at doing that is if if you know that
you're going to close on the property
and you're immediately going to dump it off to another investor,
again, probably I'd use the Land Trust versus an LLC
because it's much quicker and simpler to move a land trust
to a third party than it is to move the limited liability company.
This requires a lot more paperwork and legal work to transfer this
LLC than it does just to move the land trust.
So just got to look at the type of deal you're doing.
But remember this if you do go the land trust route,
you still need the asset protection and down here.
So if you're going to keep your properties
in that land trust, you're still going to be having an LLC on the back side.
So that's why I said for most deals, I'm
going with the LLC over the land Trust because you still need it, guys.
Hope you figured that out.
I got some good information here on on which of those you should use
when you're you're closing on property.
If you want to set up a strategy session, you check out the show notes.
Also, I teach a one day tax and asset protection
event for real estate investors.
I also have a link in the show notes for that.
You can register for it.
I'll show you the next upcoming live event that I have.
Or here's the thing.
You can go on to that event, not am I going to teach you
about land trust, an LLC and things like that, and various real estate
strategies to help you acquire more real estate.
I mean, these are things that I wish I knew 25 years ago
that it took me
ten years to finally discover I'm going to be sharing those
same strategies with you so you don't make the same mistakes
that I did when I first started investing.
So it can basically supercharge your investing.
But more importantly,
I'm going to have a team of attorneys there and tax professionals
that will be answering your specific questions as they come up.
During my presentation.
So you're going to be able to walk away
from that event with information that is specific to you.
I hope to see you there.