Trusts: The Firewall for Real Estate

Mike: Welcome back to the FlipNerd.com REI Classroom where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.

Jack: Hi, my name is Jack Shea and I’ve been a real estate investor for about 30 years. I’ve invested in single-family homes, multi-family notes, personal property like mobile homes and items like that. But one thing I’ve done in every transaction is use a trust.

Mike: This REI classroom real estate lesson is sponsored by UglyOpportunities.com

Jack: When I grew up in Chicago, my father had investment properties and they were in trust. I wasn’t sure what was going on, but I heard him talk about them that the banks wouldn’t loan money to he and his partner unless the property was held in a trust. So when I moved to Florida and started buying a property they had a statute in Florida.

My friends got a license and other friends were using trust so I have never done any kind of deal not being in a trust. I shortly after that hired an attorney, Mark [Warda] as my trustee and we’ve become partners and friends for that time. And he’s written a law book about trusts. He’s also from Chicago so he learned it in a law school. So they’ve been around since the beginning of time of the US law. They came from England from the Middle Ages so it’s well grounded in the law in the US that they can be used in all 50 states. And it’s called just a revocable trust for holding real estate.

Six states have a state and every other state they just call it a revocable trust or guarantor trust. And we have a book with the laws of all 50 states. So you can use it and it comes with a ton of benefits. And the personal property trust is also very similar. It’s made to hold notes in real estate, cars, things like that.

They’re very well founded, but the benefits are strong. You get the privacy of not being on public record. The beneficiary’s not listed, just the name of the trustee. And there is a trust agreement that lists who the beneficiary or multiples are. But when the property is in a trust, new investment tools are available to an investor. It turns real estate into personal property. Therefore, you can trade it and buy it and sell it in private, no witnesses, no notary. You can take on partners, you can do it without going to the courthouse. The purchase price is not disclosed. There’s a trust that voids probate.

It certainly reduces litigation costs because it’s not easy that an investor owns five houses or 50 houses. It doesn’t show up in the courthouse and it doesn’t attract jealous or contingency fee attorneys. And it’s all legal. You can do it if you like. Judgments don’t attach to property that’s held in a trust so it goes on and there are dozens of benefits. But those are the major ones that accrue, holding property into a land trust.

What it does for me is it allows you a new way to run your real estate. You get different a management system, acquisition, you can finance property by financing the beneficial interest; you can gift pieces. I’s like doing business with personal property without witnesses and notaries. You get a new way to run your real estate so it’s been very helpful to me. It’s more nimble, you can make deals, you can take on partners with people with the beneficial interest. So you can sell them 30% and they can buy it back. All this without changing deeds and going to the courthouse. So the safety and the privacy in this litigious world have been a big item for me at the management. It’s really a firewall and spam filter for your real estate. You don’t get salesmen, the tenants can’t find out who the owner is and the bureaucrats. So it just takes a lot of the stress off.

Thousands of investors that I know use it and they’re not doing anything illegal. It’s a tough enough business and making it easier is a court case in Illinois that a fellow lost because the other person has property in a land trust. And he appealed to the Supreme Court of Illinois and said, “This is not fair. This person had an unfair advantage,” and the Supreme Court of Illinois said, “That’s right. A land trust avoids some of the burdens and responsibilities of holding title in your own name. Thank you, but you still lost.”

So to me, it un-levels the playing field a little bit and you can learn about this and do it. My website, JackSheaRealEstate.com has details of ways you can pick up further information. Thank you

Mike: HomeVestors, the we-buy-ugly-houses folks, is a franchise system of hundreds of real estate investors that have purchased over 65,000 houses. If you’d like to learn more about the most powerful real estate investing system in existence, whether you’re a pro looking to take your business to the next level or whether you have no experience at all but a burning passion to be successful in real estate investing, please visit FlipNerd.com/ugly to learn more.

Please note the views and opinions expressed by the individuals in this program do not necessarily express those of FlipNerd.com or any of its partners, advertisers or affiliates. Please consult professionals before making any investment or tax decisions, as real estate investing can be risky.

Are you a member yet of FlipNerd.com, the hottest real estate investing social community online? If not, you can join for free in less than 30 seconds and get access to hundreds of off-market deals, vendors in your market to help you in your business and you can start networking with thousands of other investors just like you. Get your free account now at FlipNerd.com

Please check out the FlipNerd family of real estate investing shows where we host four great ongoing shows at FlipNerd.com/shows or simply search for FlipNerd in the iTunes store.