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. 

 

 

Breaking News for Investors

Originally posted 2009-01-04 13:04:51. Republished by Blog Post Promoter

On August 1, 2008, Freddie Mac changed its guidelines.  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.

 

The solutions to these changes are as follows:

• Cash is king.  Allow the equity that you have build in the properties you currently own acquire new properties not using a loan; however, with this option you will have to factor in the cost of repairs.  In other words, the cash has to cover the purchase and the repairs.
• All properties that are acquired must be protected.  The way they are protected will still include the LLC.  It will just be a trust that will act as a go between.  The property will be held under a trust with the beneficial interest being the LLC.

 

Remember, these changes do not preclude you from owning properties.  It just changes how they are held and how many can be financed at any given time.  Lastly, speak with an attorney on how to set up your trust and having the beneficial interest going to the LLC.

Tips for Recession Proofing Your Portfolio

Anti-Recession Tips for Effectively Shoring Up Your Portfolio

The economy can be hard on your portfolio.  This has happened before and it could happen again.  Now that we’re officially in a recession, what better time to pump up your resources and shore up your portfolio than to make it recession-proof now or at least weather the tough economic times?  Here are some anti-recession tips you might want to consider:

Aim for quality.

If there’s one thing that markets abhor, it’s uncertainty.  This is especially prevalent in the way investors behave when faced with companies that produce predictable figures.  This is also the reason why investors are loathed to take chances on companies that don’t perform as expected.  These companies are usually the small ones, ones that need investors’ faith the most.

To start shoring up your portfolio, try to avoid companies that will rely heavily on you, the investor.  It will be easier for you (and safer for your investment) to rely on companies that more or less show predictable growth because this points to better earning quality.  Opt for these companies instead – these are usually large firms, big players in an industry that have proven staying power regardless of the economy and have plenty of money to continue to run, do business, pay debtors, produce and make their investors happy.

Invest in health care.

Take your pick: drugs, medicines and pharmaceuticals or health services.  Whichever way you go, you have a better means of shoring up your portfolio if you put your faith on this sector that continues to enjoy a healthy performance.

And it shouldn’t surprise you one bit: what the health care industry can offer is a staple among consumers – good health and a means to cure.  Unless someone comes up with a miracle cure soon, the health care industry will continue to thrive.  Until then, this is one more segment of the market that you might consider putting your faith on.

And yes… the fact that certain segments such as pharmaceuticals pay a lot in terms of dividends doesn’t hurt.

Stick where the crowds are.

By crowds, we mean consumers.  Consumers are the lifeblood of economies.  Without their support and willingness to spend, economies can crash and burn so easily.  As an investor looking to shore up your portfolio, here’s an anti-recession tip for you: invest where consumers bloom.

This means putting your money on industries that cater to the most basic of consumer needs, such as food and beverages, personal care and household needs.  Other than the fact that consumers have been proven to continue spending for basics even during a bad economy, these industries have also performed well during less-than-ideal economic times in the past.  You’re less likely to experience disappointment if you go where consumers go.

Diversify.

Recession always brings out the worst – and best – in people, especially investors.  Which way you wish to take is really up to you.  However, wouldn’t it be better to view the recession as an opportunity to find other means to make money?

If you want to shore up your portfolio and avoid the negative effects of a recession, consider diversifying.  But do so only by carefully considering the pros and cons of the industries that you wish to invest in.  Focus on industries that have behaved so well under pressure, particularly those that continue to stay steady even during a recession.

Related articles

• INSTANT MBA: You Can’t Be Recession-Proof, But You Can Be Recession-Resistant (businessinsider.com)
• Recession Got You Off Balance? (prweb.com)
• Simple Ways to Recession Proof Your Home (taylorbrownrealestatetalks.com)
• Tips for Buying Property During a Recession (taylorbrownrealestatetalks.com)

Record Keeping for Real Estate Investors

Originally posted 2008-12-18 02:22:43. Republished by Blog Post Promoter

An investor needs accurate records of his or her rental income and expenses to prepare the investor’s income tax return.

                The following items should be recorded to collect required income tax information for each individual property:

·         Rental Income/Capital Expenditures

·         Rental

·         Expense

·         Additional Information

·         Sale of Rental Property

On the rental income form, enter all rents received even advance rents.  However, security deposits are not classified as rent.  Once the deposit is converted into paid rent or damages then it is calculate as rental income.  If the tenant performs services or the tenant pays for repairs and the investor compensate him or her through reduced rent, include the value of these services as rental income.  In addition, the investor will be entitled to an equivalent deduction for the expenses.

                Upkeep and maintenance of the property are considered rental expenses.  In addition, the cost of labor paid to contractor to maintain the property for the investor is a rental expense, as well. The payment to the contractor is income for the contractor; therefore, as an employer the investor needs to collect the social security number of the contractor so that the investor can withhold and pay employment taxes for the contractor.  The contractor will need to fill out W2 form.      

                Another expense that the investor will have is travel.  Travel include going to the rental property to collect the rent and trips to deposit the rent into the bank.  For mileage, keep a log. 

                Capital expenditures are expenditures that improve the useful life of the rental property.  Purchase of furniture or appliances for the tenant’s use are capital expenditures, as well.  These items may have a useful life of over one year and need to be depreciated.  For example, the difference between repair and replacement of a roof determines whether the item is an expense or capital expenditure.  If shingles on a roof is replacement, but not the whole roof replaced then the work is a deductible expense; however, if the entire roof is replaced then it is a capital expenditure because it extended the useful life of the property.

                If the property is used for both personal and business use then expense will need to separate between personal and rental use.  The interest, taxes, insurance, and utilities are partially deductible expense. On the other hand, repairs to the rental property are fully deductible expenses.   To determine the investor’s personal expenses, a business use percentage will be determined and this amount will be applied to the partially deductible expense to calculate the personal expense.

                Accurate recordkeeping will help the investor ensure that him or her get credit for every deduction that the investor is entitled too.  It is also important to keep receipts and payment records of all items listed.  Lastly, keep all records and closing papers of rental properties bought and sold.

 

 

Just Reduced $19,900 3877 Colbourne Hobart, IN

Originally posted 2009-03-10 08:36:33. Republished by Blog Post Promoter

Priced to sell.  Add this lovely home to your investor portofolio for as little as $54.52 a day.  Make your appointment today by calling Serena at  219 803 4489.

 

What To Look For In Income Property?

Determine If Being a Landlord Is Right For You

Once you determine that being a landlord is right for you by understanding the market, learning the climate of the rental community, learning the neighborhood or neighborhoods that the potential income property is in, and understanding your finances to include vacancy rate.  Then, the investor is ready to find an income property.

Know Your Finances

First, we will discuss understanding the investor’s finances.  The goal of the income property is to produce income.   In other words, the property must cash flow.  To determine if a property cash flows, the investor must know the property taxes, the mortgage amount, maintenance cost, insurance cost, the fair market rent, and the repairs needed to make the property livable.

The property taxes,  mortgage amount, insurance and fair market rent can make or break the income potential of a property.  How you ask? The latter items with the exception of fair market rent must be paid by the owner whether the rent is collect from the tenant or not that is why the vacancy rate must be part of the investor’s calculations in determining the income potential of a piece of property.

Let’s look at the math.

As an investor looking at the  math is just as important and in some cases more important than finding the property.

There are options that the investor must consider if he or she is financing the property.  One option that an investor may choose is a hard money lender.

In order to determine if this the right choice for the investor, I found a math calculator that will help with minimizing the risk of this type of loan.  Remember, the interest rate on this type of loan can be very high.  Let’s examine the hard money loan by click on the link. 

There is an advantage to this type of loan.  The advantage of this type of loan is that the investor can get immediate cash or access to the equity of the property.  This loan, however,  is often used if the investor needs to rehab the property after purchasing it. 

At the time of purchase of the property that needs rehabing the investor will need to determine what the after rehab value is for the property.  The reason this is important is that the hard money loan will yield 65% to 70% loan to value for the investor.  For example, let’s say the investor found a property for $35,000 and the after repair value is $90,000.  The loan amount will be $58,500, so the investor will have $23,500 for the rehab.  The available amount for the rehab needs to be determine before purchase, so that the investor can determine if the project will possibly yield the income or value that the investor is expecting after the rehab is complete.

Once the potential amount of funds for the rehab is determined the investor needs to get estimates on the rehab to determine if the amount available is enough to complete the project.

It is important to note that all of this research needs to be completed before purchase.  In an effort, to prevent the prospective property not being sold before the investor completes his or her research, the investor would need to have his or her contractors available at the time the potential property is considered for purchase. 

The contractors would give the investor a rough idea of the amount needed for the rehab.  Of course, most properties that the investor would consider will not have utilities on, so the investor needs to add an additional twenty percent to the final estimated rehab amount to cover possible unknowns.

Once the investor deems that the property is a good investment then the investor purchases the property.  However, to reduce the investor’s financial risk the investor must also determine how long the rehab will take and when the investor will realize an income if the property is an income property or buyer if it is consider a flip property.

The math consideration does not stop at determining the type of financing, the investor also needs to consider the holding cost.  The holding cost is interest, property taxes, insurance, and utilities. 

Another aspect of examining income property is making sure that that the investor is abreast of all the changes to the market, the neighborhood, and the laws. 

Changes in Laws that Affect Investors

Due to the shift of the real estate market it is more important than ever to keep abreast of changes to the financial world, the neighborhood, employment, etc.  There are several changes recently that have affected real estate investors, so it is important to be abreast of the industry.  Please read the articles below:

• Real Estate Investor, Beware
• Breaking News For Investors 
• Types of Real Estate Markets
• Investors Have Options
• Good New Investors
• Thinking of Becoming An Investor
• Great News Investors, You Can Finance 10 Properties Again

Real estate investing can be rewarding, but it is very important to exam the risk.

Investors Have Options

As a real estate investor, it is recommended that you keep abreast of market trends, latest news, and economical insight.  Therefore, I recommend learn those trends by following this blog and following National Real Estate Investor. 

At the  National Real Estate Investor’s site you can get a subscription and/or get several free newsletter. 

Some of the newsletters are about:

• Helping commercial real estate professionals
• One newsletter examine the key economic trends and market trends.
• Still yet another newsletter examines the latest news in commercial real estate.
• Another newsletter examines technology used in commercial real estate.
• Another newsletter examines topics, economic, markets, and trends in commercial real estate executives.
• There are newsletters on senior housing, development trends, green technology and lastly commercial brokerage trends.

I think, that it is equally important to examine commercial real estate, as well as, residential real estate.  The reason I am recommending this is that commercial real estate is not affect by the same trends as residential real estate is affect with.  In other words, commercial real estate is doing okay and residential real estate is not doing okay.

Good News, Investors

The flipping rules have been relaxed until June 2009.  Until recently, an investor has to wait 90 days before the investor could resell a home to a FHA buyer.

The reason for this change was because investors are helping the economy by repairing the large number of foreclosed home thoughout the country.

According to the FHA, “under the revised policy the purchasers will have to be financed capable to handle the mortgage and underwriters will talke a hard look at the appraisal.”  As a result of the changes, the FHA will not be, or at least for the time being, turning down mortgages because the previous owner owned the property for less than three months.