I have been buying property in a land trust since I first got started as an investor. I was lucky to have seasoned real estate investors in my REIA that taught this principle. Not every investor is that lucky when they start out, so I want to go over how easy buying property in a land trust really is. I also have a blank land trust that you can use for your own properties.
Why Buy in a Land Trust?
Land trusts hide your ownership of real estate, and they make it harder for people to find you. This is especially beneficial for landlords as you will see below.
What Exactly Is a Land Trust?
People think that buying property in a land trust is complicated. In reality, a land trust is a simple, inexpensive method for handling the ownership of real estate.
Here is the definition of a land trust:
“A land trust is an arrangement by which the recorded title to the real estate is held by a trustee, but all the rights and conveniences of ownership are exercised by the beneficial owner (beneficiary) whose interest is not disclosed. Sometimes that beneficial interest of the trust is held by an investor’s LLC or other business entity”. Source: Illinois Department of Financial & Professional Regulation
Another way of saying it is a land trust is a private legal contract in which the owner of real estate transfers the title of the property to a trustee. The property owner still has all the rights of the property, but they can be “invisible” in the transaction. It’s a way of hiding the ownership of real property.
Famous Land Purchases using Land Trusts
One of the more famous purchases using land trusts would be the Disney purchase of property in Orlando for its next theme park back in the mid 1960’s. It was a smart business decision on the part of Disney who was an extremely wealthy company. They managed to buy the Florida property much cheaper than if the buyer’s identity had been known.
For most people, buying property in a land trust is simply a way to keep their name off the title. I like the protection that trusts offer. It is especially beneficial for investors that buy and hold rental property. Landlords are prime targets for lawsuits. While a land trust doesn’t completely protect you, it does make it harder to find you.
Land trusts also make it easy to sell property. In some cases, they will allow property to pass to another individual upon their death without going through probate.
Can Anyone Create the Trust?
It is simply a document that you can fill out prior to closing on the property. My closing attorney takes care of that for me, but anyone can do it. You don’t need to be an attorney to create the land trust. When I buy a property rather than putting my name on the contract, I will use the street name as the land trust.
Buying property in a land trust would look something like this:
Buyer: The 12209 Market Street Land Trust, S. Vornholt Trustee.
The beneficial interests of that trust can then be assigned to a business entity if desired.
Now, if I really want to mask ownership of the property I would use another trustee. I wouldn’t have my name on the dotted line. Since I’m a wholesaler and I always to a simultaneous closing that’s not usually an issue for me. I am also never getting a mortgage.
You can also use an “initial trustee” such as a trusted friend or even your attorney until the title is recorded. That person can then resign and you can step in as the trustee. Note that the change in the trustee does not get recorded. If someone were to look you up, they would not find your name, but the name of the original trustee.
You need to be informed, but don’t be too concerned about how all of this works. Your closing attorney will handle all of this for you.
Common Questions about Buying Property in a Land Trust
Who can enter into a land trust? Anyone that can enter into a contract can enter into a land trust. It could be an individual or a business entity.
Why would an individual want to buy property in a land trust? To remain anonymous. Under a land trust, the true owner of a property is never disclosed.
Can you use a land trust when 2 or more people are buying a property together? Yes. Land trusts work well for these situations.
Who controls the property in a land trust? The beneficiary of the land trust controls the property.
Get your Sample Land Trust Agreement
I have a sample form for you today that was created by my closing attorney here in Louisville, KY, Harry Borders or Borders and Borders (who is awesome by the way).
Things are often a little different from state to state, so as with any real estate contract or form, run it by your own attorney just to be safe. It’s a pretty straight forward document. I encourage you to always buy property in a land trust.
Let me know if you have any questions, and I will do my best to get them answered.
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