Land Trust Series Part IV: The Negatives

I am the biggest advocate for land trusts you will ever meet. I have successfully used them in so many scenarios that have made deals, saved deals and killed deals (on purpose) that there is no way anyone is going to successfully argue with me that land trusts are not one of the best tools available for real estate investors. Hands Down.

With that said, anyone that knows me will, I hope, say that I am a pretty straight shooter. So, today, I am going to admit that there are two sides to every coin and will discuss a few of the negatives.

Negative #1: Hazard insurance is more expensive when property is held in a land trust. Some clients tell me the price difference was enough to steer them away from land trusts completely while others have said it wasn’t that big of an issue. I believe it all depends on your agent. Like everyone else on your team, make sure your insurance agent is investor friendly.

Negative #2: Some counties will require that an attorney file an eviction on behalf of the trust. A pro se action is when someone represents themselves in a case. This is fine. However, in order to file a case on behalf of anyone other than yourself you must be a licensed attorney. Technically, when a property is held in a land trust the trust is a third party that must be represented by a licensed attorney. The same would is true for property owned by corporate entities. An LLC cannot represent itself; therefore, an attorney is required to represent that corporate entity. Of course, I have seen plenty of people file an eviction on behalf of their LLC. I think it just depends on your county and the judge as to whether they push the issue and require representation.

Negative #3: There is a misconception that you can’t buy REO’s or short sales in a land trust. I should have put this under my last blog entry which was the True or False one because this is no longer true. There was a time when some banks were not accepting offers if the buyer was a land trust or corporate entity because they didn’t like the idea of “flippers” buying their properties, but this practice has almost completely disappeared. I actually don’t even remember the last time I saw an offer rejected because a land trust was the buyer. 

Negative #4: Property management can be a pain if your trustee doesn’t know what they are doing. Since the trustee holds title, everything needs to go through the trustee before anything can happen with the property (sign permits, contracts, leases, field offers to purchase, etc).  A good trustee will provide you with documentation needed so that you don’t need to call their office every time something comes up with your property. If I know the investment strategy or the long term goal of the client I can provide the client a form that will allow them to easily manage the property under pretty much all circumstances. It makes my life and the clients’ life a lot easier.

These are the main complaints I hear from clients or potential clients and I can completely fix them or at least make them less of a head ache. So see, even the negatives aren’t that bad.


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