Land Trust Essentials: Why Owner Financi...

money Hey Moguls, it’s a great day because our trusted advisor, Mr. Land Trust, is back again with another terrific lesson about Land Trusts.

Randy Hughes is seriously the expert on all things Land Trusts. In fact, he’s done an awesome series for us, which you should definitely check out because he breaks down all the confusing stuff into easy-to-understand information for us. We highly encourage you to take a peek and start with Part 1.

But, for today, Randy is explaining the goods on owner financing and how that plays a role in land trusts. So, we’re gonna let him take over…

From Randy Hughes, Mr. Land Trust…

I just love real estate and all the opportunities it presents. One of my favorite ways to make money in the investment real estate game is buying with owner financing and then selling the same way. After 43 years in this business, I have discovered that keeping the banks out of my transactions makes me more money.

In other words, I profit more if I am the bank!

Here is an owner financing case in point...

‘Ron’ was a recently divorced man with a 2,000-square-foot ranch-style home that he did not want anymore. Not only was Ron’s home too big for just him (the kids and ex-wife had moved out already), but there were too many bad memories lurking around every corner.

Ron had received my postcard that said “I buy houses,” and he invited me over to discuss the possibilities. As Ron sat in his living room eating dinner on a TV tray, watching TV and talking to me at the same time, I soon realized that there was an opportunity for both of us. I could acquire another fine rental home, and Ron could move out of town and start a new life.

money Ron was willing to let me “take over his loan” if I would give him enough money to get out of town ($2,000). My only concern at this time was the possibility that Ron might do something stupid after I bought the house, and a lien or judgment would attach to the title stripping me of my newfound equity.

What would make all of this work with minimum risk to all parties? You guessed it … the Land Trust. The Trust protects the title from liens and judgments and provides privacy of ownership. No one snooping around the county recorder’s office will find out anything about these transactions and that is the way I like to do business.

Solving the problem…

To solve the potential problem of Ron’s future behavior, I explained the many benefits of putting the title to his home in a Land Trust. Specifically, I said to Ron:

“You and I have only known each other for a few hours and to protect the title to your home from both of our future behaviors, please consider transferring the title to a Land Trust.”

He, of course, had several questions but ultimately decided that it was a smart thing to do to protect the house from possible title clouds until our transaction was complete.

At the closing of our deal, Ron transferred the title to his home into a Land Trust and assigned the Beneficial Interest to me for a $2,000 consideration. We notified Ron’s lender to start mailing his monthly payment coupons to my P.O. Box, and I continued making the mortgage payments thereafter.

Step one of a two-step process was complete.

Now, to selling it…

I immediately began advertising my new rental as a “low down payment” contract sale opportunity. Within two weeks I had two prospects to choose from, and I accepted the one with the best references and highest credit score. My new buyer gave me $7,000 down, and I amortized the balance over 25 years with a 3-year balloon payment at 7% interest.

At the closing of this transaction, I gave the buyers a copy (not the original) of my Assignment of Beneficial Interest to them. The buyers also signed an Installment Contract to Buy the Beneficial Interest in a Land Trust. The original Assignment of Beneficial Interest was held in escrow by my attorney (to be released upon payment in full to me).

Everyone wins…

bank This type of transaction is truly wonderful for all parties:

Ron got out from underneath a house that was not only killing him financially, but haunting him mentally.
I acquired a nice house in a great neighborhood for only $2,000 and no personal liability on the underlying loan.
Then, I sold the house for more than I paid for it receiving a nice monthly cash flow on my equity AND a 2% arbitrage on the underlying loan!
I almost forgot – I received $5,000 more down payment than I had paid Ron.
Oh, and not to forget my buyers…they were able to buy a $150,000 house with only $7,000 down and no bank qualifying! If I had not created this deal for them they may never have been able to buy a house in their lifetime.

And that, friends, is the right way to utilize owner financing and Land Trusts for everyone’s benefit.

Randy Hughes, aka, Mr. Land Trust™