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Subject To & Land Trusts | Creative Real Estate Investing For Beginners - Video 8 - YouTube
Channel: Epic Real Estate Investing
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The creative in creative real
estate and creative financing
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is when an idea is used to buy real estate
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instead of using money.
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As a real estate investor,
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it's never a money problem
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but rather an "idea" problem.
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You don't need a lot of
money to make money here.
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You just need a lot of ideas.
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Boom!
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We refer to these creative ideas as terms;
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terms like equity sharing,
options, lease options,
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agreement for deed, seller
carry back, subject-tos,
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wraps, all-inclusive trust
deeds, and so much more,
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and you'll see links in
the description below
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for the entire series on these terms
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or ideas.
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And right now,
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I'm going to veer from
the curriculum a bit
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to show you how the land
trust can be incorporated
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into your creative real estate investing
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to protect your deals
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and provide some additional
flexibility and options
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in how you profit from your deals,
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especially as how it pertains
to subject-to transactions.
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But before we go there,
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click the subscribe button
and ring the notification bell
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because I post cool stuff
like this each and every week,
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and you don't want to miss it.
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Let's do it!
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A land trust is a legal entity
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comprised of a trustee and a beneficiary
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that take ownership of or
authority over a piece of property
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at the command of the property owner.
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For our purpose to creatively
invest in real estate,
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a land trust allows the property owner
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to anonymously maintain
all rights over a property
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and direct the actions of the land trust.
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The land trust is on title.
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You, the beneficiary, receives
the rights to the property
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of which includes, but is not limited to,
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the right to occupy, the
right to rent, to develop
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or to sell the property.
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The trustee will follow the
terms of the trust agreement
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and act in the best interest
of the beneficiary, you.
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A major benefit of a land trust
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is the ease of transferring
ownership of the property
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to your heirs when you pass.
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Without a trust, an individual's will
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has to be assessed through the costly
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and time-consuming legal
process of probate.
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Land trusts, unlike people, don't die.
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So the succession plan set up
in the trust remains in place
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without needing probate.
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It's why land trusts
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are a common instrument
used in estate planning.
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And because they are so
commonly used for that,
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a transfer to a land trust
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almost never throws up
a red flag to the bank
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for your subject-to transactions.
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The main benefit, however,
of the land trust is privacy.
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The trustee's name is the only name
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that appears in the public records.
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As long as your name doesn't
appear as the trustee,
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your ownership of the
property remains hidden.
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And as a real estate investor,
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that can be very important
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especially when your
wealth starts to grow.
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After the title of a property
is transferred into a trust,
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the names of the owners
cannot be disclosed
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without a court order.
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This helps to avoid
litigation from the bad guys
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who may find or look for a reason
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to try and get some of
your hard-earned wealth.
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Lawsuits; they happen.
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A land trust doesn't directly
provide asset protection,
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but if the bad guys
can't find your assets,
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it indirectly does.
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They can't take what they can't find.
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Now the primary reason
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a creative real estate
investor would use a land trust
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is to prevent a lender from
invoking the due-on-sale clause
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on their subject-to transaction.
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As we discussed in the
last lesson on subject-tos,
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most, if not all mortgages these days,
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include a due-on-sale clause.
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The clause allows banks to call a loan due
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when the title gets transferred.
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Now, just because they can
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doesn't mean that they will.
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In fact, they rarely do.
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But just in case they do,
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there is a legal work
around regarding this clause
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that can provide you an
extra level of protection
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from the due-on-sale clause.
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It was in 1982,
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the United States Congress
enacted the Garn-St. Germain Act.
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And under this act,
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mortgage lenders cannot
enforce the due-on-sale clause
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on a property that is
a part of a land trust
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as long as the borrower
is also the beneficiary.
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When a property is
transferred into a land trust,
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only the deed reflecting
the name of the trust
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and the trustee is recorded.
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The land trust agreement where
the beneficiary is documented
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is not recorded.
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So the beneficial interest
can be bought, sold, or traded
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without anyone ever knowing,
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including the lender.
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Of course, laws are not
always black and white.
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The subtle and debatable nuances
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of real estate investors using land trusts
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are much better understood
by bar-licensed attorneys
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who have years of experience
using land trusts,
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and I recommend you consult
one to protect your interests
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and satisfy your questions and concerns.
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You don't need a lawyer to
transfer title to a land trust,
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but I use an attorney
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for all of my land trust
subject-to transactions,
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and you'll understand
why in just a minute.
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Here's how it works:
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As with your typical
real estate transactions,
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purchasing a property with a
land trust requires a closing
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to prepare, sign, and file
all necessary legal documents.
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When you make the purchase agreement,
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rather than putting your
name on the contract
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use the street number and
street name of your land trust.
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It would look something like this.
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Buyer: 123 Main Street land
trust, J. Jones trustee.
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Buyer: 123 Main Street land
trust, J. Jones trustee.
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You can create the land trust
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at any time prior to
closing on the property.
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My closing attorney takes
care of that for me,
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of which is who I also name
as the initial trustee.
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This way, he can sign
to close the transaction
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and my name never appears
on the dotted line.
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He'll write in the
seller as the beneficiary
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and the seller will then assign
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the beneficial interest to my LLC.
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And then after we close,
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my attorney will resign as
the trustee while I step in.
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Now I am the trustee and
my LLC is the beneficiary.
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Note that the change in the trustee
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and the assignment of beneficial interest
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are not required to be recorded.
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If someone were to look the property up,
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they would not find my name anywhere,
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but rather the name of
the original trustee.
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Now I fully own and control
the property without the bank,
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or anyone for that matter, knowing.
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This is all information
that you should know,
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but don't be too concerned
about how all of this works.
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Your closing attorney will
handle all of this for you
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and see to it that you are
compliant for your market.
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Just a short video supplement
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to the last lesson on subject-to.
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If you missed that one,
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you'll see the link in
the description below
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to where you can catch up
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and what we've been talking about here
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is going to make a whole
lot more sense to you.
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Let's move on to our next creative idea:
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the wraparound mortgage and
the all-inclusive trust deed.
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But before we do,
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if you found this video invaluable,
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there's a really good chance
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you know somebody else who will too.
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When that person when they come to mind,
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please share it with them.
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Thanks for watching. See you next time.
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