Show Summary
Land trusts are a powerful tool for real estate investors, if used properly. In this litigious society where there are databases that know more about you than you know about yourself, Land Trusts provide privacy and asset protection online any other legal entities. Randy Hughes, aka, Mr. Land Trust, joins us today to talk about Land trusts, including their benefits, and how to keep them simple. Great show…check it out!
Highlights of this show
- Meet Randy Hughes, aka, Mr. Land Trust.
- Learn about the power of using land trusts to provide asset protection and privacy.
- Join the conversation on how land trusts can help simplify your life, and help you pass assets to your heirs much easier.
Resources and Links from this show:
Listen to the Audio Version of this Episode
FlipNerd Show Transcript:
Mike: Hey, it’s Mike Hambright with FlipNerd.com. Welcome back for another exciting Expert Interview, where I interview successful real estate investors experts and entrepreneurs in our industry to help you learn and grow. By the way, if you happen to be looking for off-market wholesale deals, we have hundreds of them on FlipNerd.com right now. And you can get an account for free in about 30 seconds. So go to FlipNerd.com if you’re not already a member.
Today I’m joined by Randy Hughes. He’s known as Mr. Land Trust. Randy’s been a full time real estate investor for over 45 years. And a lot of veteran real estate investors over time, as a pass, as you mature in your life, as you get closer to retirement, as you build up your rental portfolio and things like that, you start to think a lot more about privacy and asset protection. As you worked hard to build up what you’ve built and you don’t want that to get taken away from you somehow. And you really don’t want people bothering you. There’s a big element of privacy that you can benefit from with land trust.
So today we’re going to talk about Randy’s area of expertise, which is land trusts. In an episode that we’re going to call Land Trusts Made Simple. It’s a great tool to help protect what you’ve worked so hard for. Before we get started with Randy today, let’s take a moment to recognize our featured sponsors.
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Hey Randy, welcome to the show.
Randy: Thanks Mike, I’m happy to be here.
Mike: Yeah, glad to have you back. You were on a little over a year ago and we talked about land trust a little bit then as well. And I know you’ve got a story to share with us too of something that actually happened since then that actually protected you from potentially massive losses. So we’ll get back to that in a second.
Randy: Okay, good.
Mike: But before we get started, for those that aren’t familiar with you, maybe you could introduce yourself. And just talk at a real high level about the importance of land trusts and why you started using them yourself.
Randy: Okay, well I started buying houses, single family houses as an investment vehicle, when I was in college. I was 19 years old when I bought my first house. And continued buying houses after graduation. And pretty much have been a house guy all this last 45 years. I have invested in apartment buildings and shopping centers and commercial buildings, like restaurant buildings and that sort of thing. But over the years I realized that the single family house fits my personality the best. And I got the best rate of renewals.
And what I mean by that is, when I owned apartment buildings they were on campus, on a university campus. And while you can make good money in that business, you have basically 100% turnover every year. And I don’t like that much turnover. It’s too much work. So I have just evolved into nothing but single family homes. And I do still have the shopping center that I bought a long time ago.
So the single family homes we have a turnover rate of about 15-20% a year, so 80-85% renew. And I like that. I can handle that. It allows me to live another life other than constant management, because I do my own management along with one full time employee. So I have just accumulated those houses, many of them over the years. I’m a buy and hold guy. I do sell once in a while. When my daughter gets married I’ve got to cash something in. Or when my daughter goes to college, I’ve got to cash something in. But basically I like to buy and hold and let those tenants pay down.
But it was probably, I think I had about 15 single family houses in my name back in the late ’70s when I attended a privacy and asset protection seminar. And my eyes were open wide as to the risks that I was taking by owning real estate in my own personal name. And I quickly found out that there really are no advantages to owning real estate, putting your name on the title and the deed. There are no advantages to it. There are only disadvantages, because you get all the same tax advantages even if you put it in a trust. You just don’t have the same amount of liability.
And so that really opened my eyes and made me sit back and start looking for ways to hold title other than in my own personal name. And of course there’s a corporation. Back in those days there were no LLCs. But I did discover the land trusts and have been using them ever since.
Mike: Yeah, yeah. I know that, here’s what I know. There’s a lot of people that don’t use them obviously. And when you talk about it, they’re interested. “Wow that sounds like a great thing. Yeah I been meaning to do that.” And they just don’t get around to it. Life gets in the way or things get in the way. But I’ve never, I don’t think I’ve ever met anybody that uses land trusts that regrets doing it. They never say, yeah I did them for a while but I stopped because… I’ve never heard that personally.
Randy: I’m glad you mentioned that. I’ve never either. It’s an interesting perspective.
Mike: Yeah, so maybe you could talk a little bit about what a land trust is. And then maybe you could tell us the story you kind of mentioned to me briefly before we started that happened to you over the past year.
Randy: Okay. Well, a land trust is really nothing more than just a few pieces of paper. You need a deed and you need a trust agreement. Those are the two documents that create a land trust. The trust agreement could be written on the back of a napkin. Or it could be a hundred pages long. Just depending on how much meat you want to pack into it. The deed is called a deed in trust and it’s very similar to a warranty deed. But it’s got a little different language that helps create the trust.
So it’s really not as intimidating as it might sound. All you do is form your trust agreement and then you file the deed. And it’s done. It’s either taken out of your name and in put into the trust at that point. Or the smart way of buying real estate is to take title directly from the seller to your trust and never go on the chain of title. That’s the best way to do it.
But for those of you investors out there that already have real estate in your name, it’s still very, very important that you get it out of your name for a whole bunch reasons. In fact I keep getting asked the same questions over and over about land trusts. And so I sat down about10 years ago and I wrote a booklet called 32 Reasons to Use a Land Trust. And then I revised that about a year or two ago. And now it’s called 50 Reasons to Use a Land Trust.
Mike: Okay.
Randy: It’s because not only do I discover new and creative ways of using these trusts, but a lot of my students do and they tell me about it. But certainly the number one reason to use a land trust is privacy of ownership, because if you get your name out of those county courthouse records it will save you a lot of problems all the way from avoiding identity theft, to avoiding liens and judgments on the property that’s held in a trust. So just a whole bunch of reasons. In fact, if any of your listeners and watchers Mike, want a copy of that book, the 50 Reasons To Use A Land Trust, I’d be glad to send it them for free. All they have to do is send me an email.
Mike: Yep. Randy let me ask you this, in terms of liens specifically. So I have a bunch of rental properties and what happens most often is we’ll find out that… I don’t know that we had too many issues with liens because we’ve always kind of caught it beforehand. But of course who knows until you go to sell a property what might be on there. But we get code compliance warnings all the time. And it’s kind of messy. And so in the market that I’m in, there are several cities and every city handles it differently.
Some of the cities you have a certificate of occupancy that you have to get for each tenant. I have a separate property manager. So they usually, their name is on the certificate of occupancy. So if there’s a code compliance issue, some of the time, it’s not that consistent. It goes to my property manager. Some of the time it comes to us. And some of the time we get something in the mail that says that somebody, the grass is too long and it needs to be fixed by this date. And we’re like, well that date was yesterday, like what am I going to do now?
So you’re always kind of at risk of getting liens put against your property for silly stuff with tenants that you just really can’t control. So are you saying if you have your property in a land trust they wouldn’t be able to apply those liens against it?
Randy: No, I’m not. There are different types of liens. Let’s talk about that Mike. For example, if you put your property, your rental property into a land trust and then you go out and hire a contractor to put a new roof on the house, and you don’t pay him, he can lien the house. What I mean by avoiding liens and judgments is that there are many people out there in the United States, especially since we’ve just gone through this terrible economic situation.
Many people out there that lost their home, lost their business, defaulted, foreclosed on. And they had liens and judgments against them personally. And if they go out and buy a piece of real estate today and put it in their name, the lien or judgment against them will immediately attach to the real estate. And so pretty much it puts them out of business if they’re wanting to be involved in investment real estate.
Mike: Yeah, I see.
Randy: But if they put it into a land trust that they take title of the real estate in a land trust, liens and judgments filed against them will not attach to that property.
Mike: I see.
Randy: And now if you don’t mind, maybe now is a good time to explain what I experienced personally on the shopping center.
Mike: Sure, absolutely.
Randy: Thirty-five years ago a friend of mine and I decided to buy this shopping center. It’s a 50,000 square foot shopping center in the town where I live. I insisted on putting it in a land trust, so we did. And we became co-beneficiaries to the land trust. Now in the year 2000 he moved out of town, moved to Florida. He was a big time real estate developer, made millions of dollars, was very successful. Until the crash. In 2008 his world came crashing down and he’s been struggling ever since.
Last summer, I think it was August of last year, I was reading the liens and judgments that are filed in my county and I saw his name pop up. And a bank out of Florida filed a $3.4 million lien against him in my county here in Illinois. Now why did they do that? Well I’m sure they filed it in the county where he lives in Florida also. But they knew he came from here. They suspected that he owned some real estate here. So they filed a judgment, it’s called a memorandum judgment, in the county which is like throwing a wet blanket over everything you own in the county in your name.
Now I had not insisted 35 years ago to put this shopping center in a land trust, that lien, that $3.4 million lean filed against him would have been immediately attached to the tile that he and I owned. And I would have immediately lost 35 years of equity, 35 years of work, toil, investment. Whatever you want to call it, it would have been gone in a heartbeat for something that I didn’t do. Just because I would have been on a title with somebody.
So you never, never, never go on title with anybody. And in my opinion you never go on title yourself either. Not with your spouse, not with your best friend, your business associate. There’s just no advantage in owning real estate in your name personally.
Mike: Yeah. A few questions I had for folks that are listening, I’m trying to think of objections that people would have to. “I don’t want to use a land trust because of this.” So if you’re borrowing money, let’s say for example, I have lines of credit with some different banks that I borrow from to buy rental properties. Would they lend if the property was in the name of a land trust? Or how does that work?
Randy: Well generally the answer is yes. But it depends on what kind of a loan you’re getting Mike. If the loan is being underwritten using the secondary market loan standards. So in another words if it’s going to be a federally backed loan, 30 year fixed rate type thing. They will not let you close directly into your trust. You’ve got to close in your name and sign 112 pieces of paper. They record it in your name. And then you transfer out of your name a week later into your trust.
Mike: Yeah, okay.
Randy: But those secondary market loans are scarce. Bank of America for example, will only allow you to have four of those. So if you’re going out to buy your fifth property, you can’t go to Bank of America. Some lenders will go up to 10. But I’ve not heard of any that goes more than 10. So if you’re very active in this business, you’re going to have to find another source for borrowing other than the secondary market.
Mike: Yeah and by the way, those Fannie and Freddie type loans also won’t even allow you to close in an LLC or an S-corp or any other thing. They’re only going to lend to you in your personal name. So it’s a fairly common practice for people to then deed that over to their entity name shortly after they close.
Randy: Thank you for mentioning that. You’re exactly right. So what happens, let’s say you get your four loans and they’re great loans to get. And then you want to buy a fifth property. Then you have to go to what I call is a portfolio lender. I like to deal with home town banks, regional banks. The small guys where I can walk in and see the president behind the glass in his office. Those folks will let you close directly into a trust. And that’s the best way to do it. That way you never have your name on the title for any reason. And so you need to find the right lender to work with and then it’s not a problem.
Mike: Yeah, and most of those, I don’t want to say most of them, I’m not sure. I’m not even sure with my own banks. But I think that those types of banks that are keeping the loans in-house, they know who you are. They tend to be more flexible in how they do things. And they tend to be, when you find the right bank, they’re much more real estate friendly because they understand it.
Randy: Well that’s true. Well said, well said.
Mike: So let’s talk about, how do people get started with a land trust, because I know that again there’s a few things that are like this that seem daunting or overwhelming. And I know that after you know how to do them, you’re like, from what I’ve heard from what most people say. They’re like, wow this is actually easier than going through all of these other processes. But I think it’s kind of getting over that hump. So maybe kind of quell some fears or talk about how people get started with using trusts.
Randy: Okay. Let me first say Mike, that I use LLCs. I love LLCs. But not to hold title to real estate. And I know there’s a whole bunch of people out there that have real estate in their LLCs because they’re attorney told them too. And all I’m saying is, don’t title your real estate in an LLC. You need to put each piece of real estate into its own separate trust. So each property and each trust is insulated from the other.
I mean just think of it this way, if you have 10 properties held in one LLC. And you have a liability occur, that’s either uninsured or beyond your insurance coverage on one property and you get sued and you lose. They’re going to get the entire LLC if that LLC is holding title to the property. So you just tied up 10 properties because of one property’s problem. So putting all your property into any one entity, whether it’s a corporation, an LLC, or even a land trust, is creating a nexus for a lawsuit.
Mike: Right.
Randy: So grandma and grandpa taught us, you don’t put all your eggs in one basket and you don’t put all your real estate in one entity. So if you got 10 properties, you create 10 land trusts. Well then you might come back and say, oh my goodness that’s going to be a lot of paper work and be real expensive, isn’t it? Actually it isn’t expensive at all because it costs nothing to form a land trust. Unlike if you created 10 LLCs, depending on what state you’re in. If you’re in California, that’s $850 bucks per LLC. That get’s a little pricey.
These forms that I provide in my home study course are Word document forms that you just load them up on your computer. And you fill in the blank and make a few minor decisions and you hit print. I mean it takes me 10 minutes to create a land trust. And so it is something you need some education on.
I had a lady call me yesterday on my office line and she said, “How can I get the forms quickly for a land trust?” I said, “Well ma’am, I don’t sell the forms by themselves.” “Well I just want the forms, I’ve got to do this quick.” And I said, “Well you know that’s like selling you a gun without training you how to shoot it. How do you know what you’re going to be doing? If you got these forms, how do you know how to fill them out? You have no education, no training.”
And she just didn’t understand it and we ended up just parting ways, because I’m not going to sell somebody a bunch of forms without teaching them how to fill the forms out. But it is like riding a bike once you do it. Then you wonder why didn’t do it 20 years ago because it is so easy to do.
Mike: Yeah. Talk about some the other benefits. I know you got your book 50 Reasons to Use a Land Trust. A couple things that I think are true in terms of transferring those assets to family members. You kind of eliminate, correct me if I’m wrong here. You eliminate the need to go through probates and all those things in the event that something were to happen. Talk about some of those benefits, like to your family and to your legacy.
Randy: Yeah, well that’s a very good subject and one really close to me right now Mike. Because yes, putting your property in land trusts means that if the beneficiary dies the beneficial interest is immediately transferred to the successor beneficiary. And that does not happen if you hold title in your name. If you title of real estate in your name and you die, that real estate has to go through probate, which means it’s going to be tied up for about a year and there’s going to be legal expenses and attorneys to deal with. And you may, your heirs may need that cash flow. They may need that property to pay bills with.
So by putting it in the land trust, then if the beneficiary dies, it immediately goes to the successor beneficiary. And they can make decisions today on what to do with that property. So it works really well.
Now most real estate investors, because the liability on property that’s held in a land trust flows through to the beneficiary, most real estate investors will make the beneficiary of their land trust an LLC or a corporation. And then they may be direct members of their LLC or maybe their living trust could be the direct members of the LLC. So there’s a structure there that you want to think about.
My wife died in November of last year, and we’ve been married for 41 years. Everything that we accumulated had been for the benefit of both of us. And I learned first-hand just how important estate planning is and using a land trust is in an up close and personal way. Everything flowed just the way we had planned for it to and everything worked out really well. But I could see just how much of a nightmare it would have been in addition to just losing her. But to have to deal with a financial calamity at the same time. So I was thankful that I had set things up right.
Mike: Yes, I’m very sorry to hear about your wife Randy. What are some of the other kind of prominent reasons that people… I want to say I think there’s some people that have this belief that people are using land trusts to be able to kind of dodge their responsibilities and stuff from a privacy stand point. I can tell you I’ve been personally sued a few times for real estate transactions. Not for rental properties fortunately, no issues there. But they’ve always been frivolous cases that some attorney took on because, or the person, the reason it went through was because it was on a contingency.
So most attorneys will basically cast out some bait and see if they think they can make money on it. And that’s why they do it on a contingency right. If the more work that those contingency based attorneys see that it’s going to be, the less likely they are to take a case on contingency, right?
Randy: Exactly.
Mike: So whether you use a trust, or there’s other, you could form your entity in other states and make it harder for like a Texas attorney to go to Wyoming to sue somebody. Or any of those things. But part of it is just it’s kind of a shield to get rid of those frivolous cases that might otherwise come your way, right?
Randy: You’re exactly right Mike. And I always tell my students that I don’t teach them this information for them to go out and try to take advantage of somebody. I teach it to them to defend themselves against our screwed up legal system in the United States. I can give you another real life example and I think real life means a lot to people that are listening as to whether they’re going to take action and use these trusts.
Real briefly it was about 10 years ago I sold a house that my wife and my two daughters and I lived in. And six months after we closed on the sale of that house I got a letter from a lawyer, saying that the buyer of the house had to replace an air conditioner and some flooring and he had to replace all the toilets in the house. There were six toilets in this house. And if I would just send them a check for $8000, they wouldn’t sue me. That really makes your day when you get a letter like that.
So I sent him a letter back and I said, “Dear Mr. Lawyer, you must have mistaken me for the owner. I didn’t own the property.” He sent me a letter back and said, “Well, if you just tell us who the owner is or was, we’ll go after them and we won’t sue you.” So I sent him a letter back and I said, “You know, I’m not sure who the owner was, I think it was in some kind of a trust. I don’t quite understand them really well, but I wish you a lot of luck.”
Mike: Good luck.
Randy: Good luck and you know what, I never got a response. That’s a shake down Mike. That’s exactly what’s going on across America today. And I just refuse to participate. And I can just imagine the conversation he had with his client after he got that last letter. “Well Bob, this one isn’t going to be easy, as easy as the last 10 people that we sued. What do you want to do?” “Well let’s go on and get the easy, the low hot hanging fruit. This guy sounds like he’s going to be too much trouble.”
And so just by not owning property in my name, even though land trusts aren’t designed to be great asset protection tools, they become accidentally an asset protection tool through a story like that shows you, you just put up some hurdles there and they’ll go off and find somebody else to sue.
Mike: Right, yeah. Well could you talk a little bit about that… we talked about privacy and asset protection. Talk about some other kind of privacy benefits that you get. Of course you don’t have… you wouldn’t probably get, do you have an address tied to the… For example, because I have a bunch of rental properties, every day we get mounds of post cards and letters from people that want to buy our properties. And it’s really not that big of a deal, we throw them in the trash and maybe get a few laughs out of some of the poor quality of some them. Do you still have an address typically tied to those trusts where people can still send you mail and other things?
Randy: Well, yes and on any deed as you know Mike, when you record a deed you got to put an address on there for the tax bill. And so we use a property management companies at PO Box for all mail to go through. So it’s filtered through that. But I think what you’re getting at, let me tell you another story.
Mike: Yeah, just elaborate on the privacy part of it.
Randy: When you don’t represent to the world that you’re the owner, and in fact, when you put your property in trust you’re not the owner. It changes the complexion of your relationship, with tenants especially. Last August, last summer it was, I’ve got 10 condominiums in this little complex. Each one’s put in a separate land trust. But they’re all in a complex. And last summer we were having the police called to this complex way too often. And so when I investigated what was going on, I found that no matter what the problem was, there was always this [inaudible 00:27:55]. No matter when the police were called, no matter who else was involved she was always involved.
So when her lease came up for renewal last August 1st, I told her “We’re not renewing your lease.” And said, “Well why not?” And I said, “Because the owner told me not to because of all the trouble you’ve caused around here with other tenants and the police coming and all that.” Well of course she was upset, but that was pretty much the end of the conversation with me because I’m just the property manager. I’m not the owner. Leave me alone. I just hate my job like everybody else, I just can’t wait until 5:00 to go to the bar.
So she left me alone, but three days later I get a call from the secretary, my attorney’s secretary. She says, “Hey Randy, there’s a lady down here in our reception demanding to speak to your attorney. What do you want us to do about her?” And I said, “What’s her name?” And they told me. And I said, “Throw her out. She has not right to speak to him.”
But here’s what she had done. She was so upset that her lease wasn’t being renewed she looked up online who’s the owner of her condo. Then she looked up in the phone book and found out that the trustee of that trust was my attorney. And of course he’s listed in the phone book so she marches down to his office and demands to talk to him about why her lease wasn’t being renewed. So you can see just how strong, how extreme some people get on these management issues.
For a number of years, I have two daughters. For a number of years they were young and living at my house. The last thing I want is some irate tenant that I’m evicting because he’s not paying his rent to look me up and come knocking on my door and my seven-year-old daughter answer the door. I had a lady call me last year from Florida. A lady landlord. She said, “Randy, how do I get your home study course fast?” And I said, “Well what’s the hurry?” She said, “I own eight rental properties down here in Florida plus the house I live in. And one of my tenants is a man, he’s interested in me. I’m not interested in him. And I just had one of my tenants call me and say that came looking for me at their house.”
So what he’s done is, he’s looked up online everything she owns. He’s going house to house trying to find where she lives personally. Now we’re talking some serious stalking here, Mike. So these stories are real. If you live long enough in this business you’re going to experience some of this stuff and if you don’t protect yourself you’re going to pay a dear price. So it’s not that hard to do, it’s not expensive to do. Please do it.
Mike: Yeah, yeah. Hey talk about that phenomena like that where if you already have properties in your name and then you transfer them into a land trust. People can obviously kind of go back further and maybe see you. Is there anything you can… it wouldn’t offer obviously as much protection as if you had of put it in there in the first place. But kind of talk about that issue of transferring it over and people still being able to kind of go back in the chain of ownership and see who was before that?
Randy: If you’re in the chain of title you can’t do anything about that. But once you get out of the chain of title and transfer to a trust, you can’t assume that, that person that transferred out of their name is the beneficiary of the trust. I may be the beneficiary of the trust because my trust may have bought it from you. So to make that leap to say that you’re the beneficiary of the trust, is unrealistic.
Now furthermore, the trust agreement on a land trust is not recorded anywhere. So nobody, until they sue somebody and go through a lot of legal expense in probably a year or two of legal wranglings, will be able to find out who the beneficiary of that trust is. So if it’s in your name there are 50 reasons to get it out of your name. Yes it’s not the best thing. The best is to take title directly from the seller to your trust. But my gosh, don’t hesitate just because you’re thinking, well somebody’s going to assume that I’m the beneficiary of the trust as a reason not to do it.
If you want to, if you want to make it look better, you can sell that property to your trustee on an installment contract with no payments and no interest for five years. And record that and make it all look real legit, and it is legit. The only reason why I do it that way without payments or interest is you don’t have to report the sale to the IRS until the first dollar is received. So if I don’t receive a dollar, I don’t have to report it as a sale. Yet it’s legally been a sale on the books in the courthouse records. So there are ways, and I discuss these ways in my home study courses about how to do this creatively.
Mike: Well we’re going to add some links down below the video here for folks that want to learn more Randy. But I definitely appreciate you being here with us today and sharing your insights. And I think everybody listening to this right now, a lot of folks that have been around for a while, they understand the importance of protecting those assets because we work hard in this business. And you don’t want to get to a point to where you feel like… the feeling that somebody could take it all away from you is not a good feeling.
Randy: No. It isn’t. The older you get the worse that feeling is.
Mike: Yeah. Well Randy thanks again for being with us today. I definitely appreciate your time and it’s great to see you my friend.
Randy: Thank you Mike, I appreciate your time.
Mike: All right, we’ll talk to you soon.
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Today I’m joined by Randy Hughes. He’s known as Mr. Land Trust. Randy’s been a full time real estate investor for over 45 years. And a lot of veteran real estate investors over time, as a pass, as you mature in your life, as you get closer to retirement, as you build up your rental portfolio and things like that, you start to think a lot more about privacy and asset protection. As you worked hard to build up what you’ve built and you don’t want that to get taken away from you somehow. And you really don’t want people bothering you. There’s a big element of privacy that you can benefit from with land trust.
So today we’re going to talk about Randy’s area of expertise, which is land trusts. In an episode that we’re going to call Land Trusts Made Simple. It’s a great tool to help protect what you’ve worked so hard for. Before we get started with Randy today, let’s take a moment to recognize our featured sponsors.
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Hey Randy, welcome to the show.
Randy: Thanks Mike, I’m happy to be here.
Mike: Yeah, glad to have you back. You were on a little over a year ago and we talked about land trust a little bit then as well. And I know you’ve got a story to share with us too of something that actually happened since then that actually protected you from potentially massive losses. So we’ll get back to that in a second.
Randy: Okay, good.
Mike: But before we get started, for those that aren’t familiar with you, maybe you could introduce yourself. And just talk at a real high level about the importance of land trusts and why you started using them yourself.
Randy: Okay, well I started buying houses, single family houses as an investment vehicle, when I was in college. I was 19 years old when I bought my first house. And continued buying houses after graduation. And pretty much have been a house guy all this last 45 years. I have invested in apartment buildings and shopping centers and commercial buildings, like restaurant buildings and that sort of thing. But over the years I realized that the single family house fits my personality the best. And I got the best rate of renewals.
And what I mean by that is, when I owned apartment buildings they were on campus, on a university campus. And while you can make good money in that business, you have basically 100% turnover every year. And I don’t like that much turnover. It’s too much work. So I have just evolved into nothing but single family homes. And I do still have the shopping center that I bought a long time ago.
So the single family homes we have a turnover rate of about 15-20% a year, so 80-85% renew. And I like that. I can handle that. It allows me to live another life other than constant management, because I do my own management along with one full time employee. So I have just accumulated those houses, many of them over the years. I’m a buy and hold guy. I do sell once in a while. When my daughter gets married I’ve got to cash something in. Or when my daughter goes to college, I’ve got to cash something in. But basically I like to buy and hold and let those tenants pay down.
But it was probably, I think I had about 15 single family houses in my name back in the late ’70s when I attended a privacy and asset protection seminar. And my eyes were open wide as to the risks that I was taking by owning real estate in my own personal name. And I quickly found out that there really are no advantages to owning real estate, putting your name on the title and the deed. There are no advantages to it. There are only disadvantages, because you get all the same tax advantages even if you put it in a trust. You just don’t have the same amount of liability.
And so that really opened my eyes and made me sit back and start looking for ways to hold title other than in my own personal name. And of course there’s a corporation. Back in those days there were no LLCs. But I did discover the land trusts and have been using them ever since.
Mike: Yeah, yeah. I know that, here’s what I know. There’s a lot of people that don’t use them obviously. And when you talk about it, they’re interested. “Wow that sounds like a great thing. Yeah I been meaning to do that.” And they just don’t get around to it. Life gets in the way or things get in the way. But I’ve never, I don’t think I’ve ever met anybody that uses land trusts that regrets doing it. They never say, yeah I did them for a while but I stopped because… I’ve never heard that personally.
Randy: I’m glad you mentioned that. I’ve never either. It’s an interesting perspective.
Mike: Yeah, so maybe you could talk a little bit about what a land trust is. And then maybe you could tell us the story you kind of mentioned to me briefly before we started that happened to you over the past year.
Randy: Okay. Well, a land trust is really nothing more than just a few pieces of paper. You need a deed and you need a trust agreement. Those are the two documents that create a land trust. The trust agreement could be written on the back of a napkin. Or it could be a hundred pages long. Just depending on how much meat you want to pack into it. The deed is called a deed in trust and it’s very similar to a warranty deed. But it’s got a little different language that helps create the trust.
So it’s really not as intimidating as it might sound. All you do is form your trust agreement and then you file the deed. And it’s done. It’s either taken out of your name and in put into the trust at that point. Or the smart way of buying real estate is to take title directly from the seller to your trust and never go on the chain of title. That’s the best way to do it.
But for those of you investors out there that already have real estate in your name, it’s still very, very important that you get it out of your name for a whole bunch reasons. In fact I keep getting asked the same questions over and over about land trusts. And so I sat down about10 years ago and I wrote a booklet called 32 Reasons to Use a Land Trust. And then I revised that about a year or two ago. And now it’s called 50 Reasons to Use a Land Trust.
Mike: Okay.
Randy: It’s because not only do I discover new and creative ways of using these trusts, but a lot of my students do and they tell me about it. But certainly the number one reason to use a land trust is privacy of ownership, because if you get your name out of those county courthouse records it will save you a lot of problems all the way from avoiding identity theft, to avoiding liens and judgments on the property that’s held in a trust. So just a whole bunch of reasons. In fact, if any of your listeners and watchers Mike, want a copy of that book, the 50 Reasons To Use A Land Trust, I’d be glad to send it them for free. All they have to do is send me an email.
Mike: Yep. Randy let me ask you this, in terms of liens specifically. So I have a bunch of rental properties and what happens most often is we’ll find out that… I don’t know that we had too many issues with liens because we’ve always kind of caught it beforehand. But of course who knows until you go to sell a property what might be on there. But we get code compliance warnings all the time. And it’s kind of messy. And so in the market that I’m in, there are several cities and every city handles it differently.
Some of the cities you have a certificate of occupancy that you have to get for each tenant. I have a separate property manager. So they usually, their name is on the certificate of occupancy. So if there’s a code compliance issue, some of the time, it’s not that consistent. It goes to my property manager. Some of the time it comes to us. And some of the time we get something in the mail that says that somebody, the grass is too long and it needs to be fixed by this date. And we’re like, well that date was yesterday, like what am I going to do now?
So you’re always kind of at risk of getting liens put against your property for silly stuff with tenants that you just really can’t control. So are you saying if you have your property in a land trust they wouldn’t be able to apply those liens against it?
Randy: No, I’m not. There are different types of liens. Let’s talk about that Mike. For example, if you put your property, your rental property into a land trust and then you go out and hire a contractor to put a new roof on the house, and you don’t pay him, he can lien the house. What I mean by avoiding liens and judgments is that there are many people out there in the United States, especially since we’ve just gone through this terrible economic situation.
Many people out there that lost their home, lost their business, defaulted, foreclosed on. And they had liens and judgments against them personally. And if they go out and buy a piece of real estate today and put it in their name, the lien or judgment against them will immediately attach to the real estate. And so pretty much it puts them out of business if they’re wanting to be involved in investment real estate.
Mike: Yeah, I see.
Randy: But if they put it into a land trust that they take title of the real estate in a land trust, liens and judgments filed against them will not attach to that property.
Mike: I see.
Randy: And now if you don’t mind, maybe now is a good time to explain what I experienced personally on the shopping center.
Mike: Sure, absolutely.
Randy: Thirty-five years ago a friend of mine and I decided to buy this shopping center. It’s a 50,000 square foot shopping center in the town where I live. I insisted on putting it in a land trust, so we did. And we became co-beneficiaries to the land trust. Now in the year 2000 he moved out of town, moved to Florida. He was a big time real estate developer, made millions of dollars, was very successful. Until the crash. In 2008 his world came crashing down and he’s been struggling ever since.
Last summer, I think it was August of last year, I was reading the liens and judgments that are filed in my county and I saw his name pop up. And a bank out of Florida filed a $3.4 million lien against him in my county here in Illinois. Now why did they do that? Well I’m sure they filed it in the county where he lives in Florida also. But they knew he came from here. They suspected that he owned some real estate here. So they filed a judgment, it’s called a memorandum judgment, in the county which is like throwing a wet blanket over everything you own in the county in your name.
Now I had not insisted 35 years ago to put this shopping center in a land trust, that lien, that $3.4 million lean filed against him would have been immediately attached to the tile that he and I owned. And I would have immediately lost 35 years of equity, 35 years of work, toil, investment. Whatever you want to call it, it would have been gone in a heartbeat for something that I didn’t do. Just because I would have been on a title with somebody.
So you never, never, never go on title with anybody. And in my opinion you never go on title yourself either. Not with your spouse, not with your best friend, your business associate. There’s just no advantage in owning real estate in your name personally.
Mike: Yeah. A few questions I had for folks that are listening, I’m trying to think of objections that people would have to. “I don’t want to use a land trust because of this.” So if you’re borrowing money, let’s say for example, I have lines of credit with some different banks that I borrow from to buy rental properties. Would they lend if the property was in the name of a land trust? Or how does that work?
Randy: Well generally the answer is yes. But it depends on what kind of a loan you’re getting Mike. If the loan is being underwritten using the secondary market loan standards. So in another words if it’s going to be a federally backed loan, 30 year fixed rate type thing. They will not let you close directly into your trust. You’ve got to close in your name and sign 112 pieces of paper. They record it in your name. And then you transfer out of your name a week later into your trust.
Mike: Yeah, okay.
Randy: But those secondary market loans are scarce. Bank of America for example, will only allow you to have four of those. So if you’re going out to buy your fifth property, you can’t go to Bank of America. Some lenders will go up to 10. But I’ve not heard of any that goes more than 10. So if you’re very active in this business, you’re going to have to find another source for borrowing other than the secondary market.
Mike: Yeah and by the way, those Fannie and Freddie type loans also won’t even allow you to close in an LLC or an S-corp or any other thing. They’re only going to lend to you in your personal name. So it’s a fairly common practice for people to then deed that over to their entity name shortly after they close.
Randy: Thank you for mentioning that. You’re exactly right. So what happens, let’s say you get your four loans and they’re great loans to get. And then you want to buy a fifth property. Then you have to go to what I call is a portfolio lender. I like to deal with home town banks, regional banks. The small guys where I can walk in and see the president behind the glass in his office. Those folks will let you close directly into a trust. And that’s the best way to do it. That way you never have your name on the title for any reason. And so you need to find the right lender to work with and then it’s not a problem.
Mike: Yeah, and most of those, I don’t want to say most of them, I’m not sure. I’m not even sure with my own banks. But I think that those types of banks that are keeping the loans in-house, they know who you are. They tend to be more flexible in how they do things. And they tend to be, when you find the right bank, they’re much more real estate friendly because they understand it.
Randy: Well that’s true. Well said, well said.
Mike: So let’s talk about, how do people get started with a land trust, because I know that again there’s a few things that are like this that seem daunting or overwhelming. And I know that after you know how to do them, you’re like, from what I’ve heard from what most people say. They’re like, wow this is actually easier than going through all of these other processes. But I think it’s kind of getting over that hump. So maybe kind of quell some fears or talk about how people get started with using trusts.
Randy: Okay. Let me first say Mike, that I use LLCs. I love LLCs. But not to hold title to real estate. And I know there’s a whole bunch of people out there that have real estate in their LLCs because they’re attorney told them too. And all I’m saying is, don’t title your real estate in an LLC. You need to put each piece of real estate into its own separate trust. So each property and each trust is insulated from the other.
I mean just think of it this way, if you have 10 properties held in one LLC. And you have a liability occur, that’s either uninsured or beyond your insurance coverage on one property and you get sued and you lose. They’re going to get the entire LLC if that LLC is holding title to the property. So you just tied up 10 properties because of one property’s problem. So putting all your property into any one entity, whether it’s a corporation, an LLC, or even a land trust, is creating a nexus for a lawsuit.
Mike: Right.
Randy: So grandma and grandpa taught us, you don’t put all your eggs in one basket and you don’t put all your real estate in one entity. So if you got 10 properties, you create 10 land trusts. Well then you might come back and say, oh my goodness that’s going to be a lot of paper work and be real expensive, isn’t it? Actually it isn’t expensive at all because it costs nothing to form a land trust. Unlike if you created 10 LLCs, depending on what state you’re in. If you’re in California, that’s $850 bucks per LLC. That get’s a little pricey.
These forms that I provide in my home study course are Word document forms that you just load them up on your computer. And you fill in the blank and make a few minor decisions and you hit print. I mean it takes me 10 minutes to create a land trust. And so it is something you need some education on.
I had a lady call me yesterday on my office line and she said, “How can I get the forms quickly for a land trust?” I said, “Well ma’am, I don’t sell the forms by themselves.” “Well I just want the forms, I’ve got to do this quick.” And I said, “Well you know that’s like selling you a gun without training you how to shoot it. How do you know what you’re going to be doing? If you got these forms, how do you know how to fill them out? You have no education, no training.”
And she just didn’t understand it and we ended up just parting ways, because I’m not going to sell somebody a bunch of forms without teaching them how to fill the forms out. But it is like riding a bike once you do it. Then you wonder why didn’t do it 20 years ago because it is so easy to do.
Mike: Yeah. Talk about some the other benefits. I know you got your book 50 Reasons to Use a Land Trust. A couple things that I think are true in terms of transferring those assets to family members. You kind of eliminate, correct me if I’m wrong here. You eliminate the need to go through probates and all those things in the event that something were to happen. Talk about some of those benefits, like to your family and to your legacy.
Randy: Yeah, well that’s a very good subject and one really close to me right now Mike. Because yes, putting your property in land trusts means that if the beneficiary dies the beneficial interest is immediately transferred to the successor beneficiary. And that does not happen if you hold title in your name. If you title of real estate in your name and you die, that real estate has to go through probate, which means it’s going to be tied up for about a year and there’s going to be legal expenses and attorneys to deal with. And you may, your heirs may need that cash flow. They may need that property to pay bills with.
So by putting it in the land trust, then if the beneficiary dies, it immediately goes to the successor beneficiary. And they can make decisions today on what to do with that property. So it works really well.
Now most real estate investors, because the liability on property that’s held in a land trust flows through to the beneficiary, most real estate investors will make the beneficiary of their land trust an LLC or a corporation. And then they may be direct members of their LLC or maybe their living trust could be the direct members of the LLC. So there’s a structure there that you want to think about.
My wife died in November of last year, and we’ve been married for 41 years. Everything that we accumulated had been for the benefit of both of us. And I learned first-hand just how important estate planning is and using a land trust is in an up close and personal way. Everything flowed just the way we had planned for it to and everything worked out really well. But I could see just how much of a nightmare it would have been in addition to just losing her. But to have to deal with a financial calamity at the same time. So I was thankful that I had set things up right.
Mike: Yes, I’m very sorry to hear about your wife Randy. What are some of the other kind of prominent reasons that people… I want to say I think there’s some people that have this belief that people are using land trusts to be able to kind of dodge their responsibilities and stuff from a privacy stand point. I can tell you I’ve been personally sued a few times for real estate transactions. Not for rental properties fortunately, no issues there. But they’ve always been frivolous cases that some attorney took on because, or the person, the reason it went through was because it was on a contingency.
So most attorneys will basically cast out some bait and see if they think they can make money on it. And that’s why they do it on a contingency right. If the more work that those contingency based attorneys see that it’s going to be, the less likely they are to take a case on contingency, right?
Randy: Exactly.
Mike: So whether you use a trust, or there’s other, you could form your entity in other states and make it harder for like a Texas attorney to go to Wyoming to sue somebody. Or any of those things. But part of it is just it’s kind of a shield to get rid of those frivolous cases that might otherwise come your way, right?
Randy: You’re exactly right Mike. And I always tell my students that I don’t teach them this information for them to go out and try to take advantage of somebody. I teach it to them to defend themselves against our screwed up legal system in the United States. I can give you another real life example and I think real life means a lot to people that are listening as to whether they’re going to take action and use these trusts.
Real briefly it was about 10 years ago I sold a house that my wife and my two daughters and I lived in. And six months after we closed on the sale of that house I got a letter from a lawyer, saying that the buyer of the house had to replace an air conditioner and some flooring and he had to replace all the toilets in the house. There were six toilets in this house. And if I would just send them a check for $8000, they wouldn’t sue me. That really makes your day when you get a letter like that.
So I sent him a letter back and I said, “Dear Mr. Lawyer, you must have mistaken me for the owner. I didn’t own the property.” He sent me a letter back and said, “Well, if you just tell us who the owner is or was, we’ll go after them and we won’t sue you.” So I sent him a letter back and I said, “You know, I’m not sure who the owner was, I think it was in some kind of a trust. I don’t quite understand them really well, but I wish you a lot of luck.”
Mike: Good luck.
Randy: Good luck and you know what, I never got a response. That’s a shake down Mike. That’s exactly what’s going on across America today. And I just refuse to participate. And I can just imagine the conversation he had with his client after he got that last letter. “Well Bob, this one isn’t going to be easy, as easy as the last 10 people that we sued. What do you want to do?” “Well let’s go on and get the easy, the low hot hanging fruit. This guy sounds like he’s going to be too much trouble.”
And so just by not owning property in my name, even though land trusts aren’t designed to be great asset protection tools, they become accidentally an asset protection tool through a story like that shows you, you just put up some hurdles there and they’ll go off and find somebody else to sue.
Mike: Right, yeah. Well could you talk a little bit about that… we talked about privacy and asset protection. Talk about some other kind of privacy benefits that you get. Of course you don’t have… you wouldn’t probably get, do you have an address tied to the… For example, because I have a bunch of rental properties, every day we get mounds of post cards and letters from people that want to buy our properties. And it’s really not that big of a deal, we throw them in the trash and maybe get a few laughs out of some of the poor quality of some them. Do you still have an address typically tied to those trusts where people can still send you mail and other things?
Randy: Well, yes and on any deed as you know Mike, when you record a deed you got to put an address on there for the tax bill. And so we use a property management companies at PO Box for all mail to go through. So it’s filtered through that. But I think what you’re getting at, let me tell you another story.
Mike: Yeah, just elaborate on the privacy part of it.
Randy: When you don’t represent to the world that you’re the owner, and in fact, when you put your property in trust you’re not the owner. It changes the complexion of your relationship, with tenants especially. Last August, last summer it was, I’ve got 10 condominiums in this little complex. Each one’s put in a separate land trust. But they’re all in a complex. And last summer we were having the police called to this complex way too often. And so when I investigated what was going on, I found that no matter what the problem was, there was always this [inaudible 00:27:55]. No matter when the police were called, no matter who else was involved she was always involved.
So when her lease came up for renewal last August 1st, I told her “We’re not renewing your lease.” And said, “Well why not?” And I said, “Because the owner told me not to because of all the trouble you’ve caused around here with other tenants and the police coming and all that.” Well of course she was upset, but that was pretty much the end of the conversation with me because I’m just the property manager. I’m not the owner. Leave me alone. I just hate my job like everybody else, I just can’t wait until 5:00 to go to the bar.
So she left me alone, but three days later I get a call from the secretary, my attorney’s secretary. She says, “Hey Randy, there’s a lady down here in our reception demanding to speak to your attorney. What do you want us to do about her?” And I said, “What’s her name?” And they told me. And I said, “Throw her out. She has not right to speak to him.”
But here’s what she had done. She was so upset that her lease wasn’t being renewed she looked up online who’s the owner of her condo. Then she looked up in the phone book and found out that the trustee of that trust was my attorney. And of course he’s listed in the phone book so she marches down to his office and demands to talk to him about why her lease wasn’t being renewed. So you can see just how strong, how extreme some people get on these management issues.
For a number of years, I have two daughters. For a number of years they were young and living at my house. The last thing I want is some irate tenant that I’m evicting because he’s not paying his rent to look me up and come knocking on my door and my seven-year-old daughter answer the door. I had a lady call me last year from Florida. A lady landlord. She said, “Randy, how do I get your home study course fast?” And I said, “Well what’s the hurry?” She said, “I own eight rental properties down here in Florida plus the house I live in. And one of my tenants is a man, he’s interested in me. I’m not interested in him. And I just had one of my tenants call me and say that came looking for me at their house.”
So what he’s done is, he’s looked up online everything she owns. He’s going house to house trying to find where she lives personally. Now we’re talking some serious stalking here, Mike. So these stories are real. If you live long enough in this business you’re going to experience some of this stuff and if you don’t protect yourself you’re going to pay a dear price. So it’s not that hard to do, it’s not expensive to do. Please do it.
Mike: Yeah, yeah. Hey talk about that phenomena like that where if you already have properties in your name and then you transfer them into a land trust. People can obviously kind of go back further and maybe see you. Is there anything you can… it wouldn’t offer obviously as much protection as if you had of put it in there in the first place. But kind of talk about that issue of transferring it over and people still being able to kind of go back in the chain of ownership and see who was before that?
Randy: If you’re in the chain of title you can’t do anything about that. But once you get out of the chain of title and transfer to a trust, you can’t assume that, that person that transferred out of their name is the beneficiary of the trust. I may be the beneficiary of the trust because my trust may have bought it from you. So to make that leap to say that you’re the beneficiary of the trust, is unrealistic.
Now furthermore, the trust agreement on a land trust is not recorded anywhere. So nobody, until they sue somebody and go through a lot of legal expense in probably a year or two of legal wranglings, will be able to find out who the beneficiary of that trust is. So if it’s in your name there are 50 reasons to get it out of your name. Yes it’s not the best thing. The best is to take title directly from the seller to your trust. But my gosh, don’t hesitate just because you’re thinking, well somebody’s going to assume that I’m the beneficiary of the trust as a reason not to do it.
If you want to, if you want to make it look better, you can sell that property to your trustee on an installment contract with no payments and no interest for five years. And record that and make it all look real legit, and it is legit. The only reason why I do it that way without payments or interest is you don’t have to report the sale to the IRS until the first dollar is received. So if I don’t receive a dollar, I don’t have to report it as a sale. Yet it’s legally been a sale on the books in the courthouse records. So there are ways, and I discuss these ways in my home study courses about how to do this creatively.
Mike: Well we’re going to add some links down below the video here for folks that want to learn more Randy. But I definitely appreciate you being here with us today and sharing your insights. And I think everybody listening to this right now, a lot of folks that have been around for a while, they understand the importance of protecting those assets because we work hard in this business. And you don’t want to get to a point to where you feel like… the feeling that somebody could take it all away from you is not a good feeling.
Randy: No. It isn’t. The older you get the worse that feeling is.
Mike: Yeah. Well Randy thanks again for being with us today. I definitely appreciate your time and it’s great to see you my friend.
Randy: Thank you Mike, I appreciate your time.
Mike: All right, we’ll talk to you soon.
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