What is a Land Trust?

Originally posted 2009-01-29 08:00:49. Republished by Blog Post Promoter

Changes to Fannie Mae’s Financing Criteria Affect Investors

Recent changes to Fannie Mae’s financing criteria have created a need for investors to reconsider how they take ownership of their new investor property.   Those changes are affecting investors who finance the property in their portfolio and have those properties under the entity, limited liability corporation (LLC). 

Freddie Mac backs many of the conforming loans on the secondary market, so any changes in the rules is very important and should be headline news; hence, this news release. 

 

The changes are as follows:

• Freddie Mac will no longer approve refinance for any property that has been under a limited liability corporation entity for the previous six months. 
• Freddie Mac is limiting the number of properties the investor can have financed to four not ten as in years passed.

 

Land Trust is Answer to Recent Fannie Mae Changes

  

The ownership option that will combat the change to the financing institutions’ criteria changes is taking ownership of the new investment property under a land trust.  What is a land trust?

 

A land trust is a method of real estate ownership in which the trustee has legal title to the property.   The beneficiary, though, has full power to control the property to include disposing of the property and management of the property. 

 

The trustee for the land trust can be an attorney, law firm, or a bank.  Remember, the trustee holds the legal title.  However, whether the trustee is an attorney, law firm, or a bank, those entities can not act without the written consent of the beneficiary who has full power to control the land trust.

 

 

Benefits of Land Trust

 

The land trust is not only the solution to the changes for financing, but the land trust also has great benefits such as:

• Privacy
• Succession
• Litigation
• Probate
• Flexibility
• Financing
• Asset protection

A land trust is considered to be superior to most business entities such as corporations, limited liability corporation, etc because the land trust has the added benefit of privacy.  The land trust does not have to be registered that means there is no public record of the officers, directors, shareholders, or beneficiary.  The trustee must keep the beneficiary and trust records in a secure location, and the trustee can not reveal the information unless subpoena.

 

Along those same lines, it is recommend that at time of purchase that of the new investment purchase for it to be conveyed directly to the trustee to avoid the owner’s name ever being part of public record.   There is other reasons anonymity or privacy is beneficial.  It can prevent unfair price increases on purchasing of property.  For example, when the land was accrued for the Disney World, Walt Disney used a land trust to disguise his intentions for the usage of the land to prevent increases in the price of the land. 

 

Still yet, another advantage to a land trust is asset protection.  The beneficiary is protected from judgments and liens.  The land trust prevents the judgment to automatic be attached to the real estate owned by the investor since the title is not in beneficiary’s name.

 

However, it is important to note that because the investor maintains control of the trust, the control or interest can be subject to creditor’s claim.  To avoid creditor’s claims, the trust needs to be irrevocable not revocable.   

 

The land trust is flexible because it allows for ease of multiple ownership.   Even though there are multiple owners all owner do not have to sign for the acquisition of a new property just the trustee who has written instruction from the owners sign the documents for acquisition of the new investment property. 

 

The land trust does can not be partition when one of the owners’ part, but the parting owner can transfer part of his or her interest in the trust.

 

The best is advantage of the land trust is ease of succession.  If the beneficiary of the land trust passes away, the interest in the trust is simply transfer via the previous written instructions to the trustee.  This eliminates the need for probate and the lengthy and costly process involve with the probate proceeding. 

 

The beneficiary of the land trust can be an individual or an entity, so if you have a limited liability corporation the LLC can be the beneficiary. 

 

The cost of the land trust may vary, but the investor may be charged as little as $100 to open a trust and $75 a year to maintain the trust for an investment property valued at $250,000.

 

Remember, the land trust is a legal document that must be review by an attorney to ensure that all of your interest is address.  If you have a LLC make sure your LLC has instructions in it as well for your beneficiary interest in the land trust. 

 

 

Indiana/Illinois Real Estate Broker Reveals the Insiders’ Secrets To Making Money in This Market

The way that an individual makes money is by keeping expenses low and income high.  The latter is true for any business venture; however, you may be wondering how do you accomplish that in real estate? 

 

To keep expenses low you must be aware of your expenses.  Your expenses may be:

• Property taxes
• Insurance
• Maintenance
• Mortgage

 

Despite the fact that an investor is not eligible for exemptions on income property, there are other ways to decrease the property taxes. 

 

The investor must first understand how property taxes are calculated by the treasurer.  Taxes are calculated by multiplying the tax rate by the assessed value.  The tax rate consists of:

• Police
• Fire
• Schools
• Library
• Trash removal
• Health

The assessed value in most states including Indiana is some variation of the market value for the property. 

 

The investor can lower his or her property taxes his or her property taxes by examining what the property is assessed at.  If the property is assessed for more than the current market will bear or assessed for more than the investor paid, the investor can file an appeal.  If successful with the appeal, the investor can save a lot of money.

 

The investor can save money on insurance, as well.  The investor can have a higher deductible.  Unlike car insurance, the investor does not pay the deductible first, then the insurance pays instead the deductible is deducted from the claim.

 

The investor can also reduce his or her replacement cost to 80% of the value; therefore, reducing the premium for the insurance.  This tactic is only advised if there will be enough available after the deduction to pay the property’s mortgage and/or money available to start on replacement of the property.

 

Still yet another way the investor can save money on insurance is by changing insurance companies.  Yes, shopping around is another way to save money on your premium.  Use caution here make sure you are getting similar or better coverage than you had before when changing insurance companies for a lower premium.

The investor also can set aside a certain amount each month from the collected rental amount for maintenance.  By setting aside a little of the rent, the investor can be prepare for major maintenance issues.

 

Another way an investor can save money on maintenance is by having a home warranty.  The home warranty covers most major components in the property. 

 

Shopping around is always the best way to save money on a mortgage.

 

When looking to save money in real estate, research and shop around you will be amazed at your savings.