Hey Moguls, Randy Hughes is back again with another installment of his awesome Land Trust series.
In the last lesson you learned that whoever holds the Power of Direction has the ultimate power over the Trust and the property within. While there are many reasons and benefits to assigning the POD, you learned to tread lightly when it comes to assigning the POD to someone other than yourself (the Beneficiary of the Trust). While assigning the POD can be a good asset-protection technique, the mere fact that once you put your property into a Land Trust you are no longer the owner is a huge psychological benefit.
Let’s let Randy take it away…
Not the Owner
There are few (if any) benefits to owning investment real estate in your own name (especially when you are considered the “owner” by tenants). It is much easier and less stressful to do business as the Property Manager and NOT the owner.
Here is a real-life case in point.
I control 10 condominiums (in one complex) via 10 Land Trusts. Each property is held in a separate Land Trust with the beneficiary of each Trust being a Limited Liability Company. My original Trustee was my attorney, but I changed Trustees the day after closing the purchase of these units (by doing this the public record shows the initial Trustee as the owner, but actually he is not). All 10 units are rented out to residential tenants.
Last summer, every now-and-then, trouble would arise at this complex and the tenants would start arguing with each other, which oftentimes resulted in the police getting involved. Upon further investigation I found that one of my tenants (I am the Property Manager of all 10 units) was always at the center of the trouble. In fact, it appeared that she was the source of all discontent!
When it came time to renew the leases at my complex I decided not to renew Ms. Troublemaker’s lease. She had rented from me for years and was VERY unhappy that we were “kicking her out.” Of course, she wanted an explanation as to why I was not renewing her lease, and I simply told her that the “owner” (the Trustee of the Land Trust) was not happy with her involvement with the other tenants and, therefore, her lease would not be renewed.
Well, this explanation was not good enough for Ms. Troublemaker. A few days after my conversation with Ms. T., I received a call from my attorney’s secretary. The secretary said there was a lady at their office demanding to speak to the “owner” of the property she lived in.
Ms. Troublemaker had gone online to the local recorder’s office website and determined who the owner of record was for her condo (my initial Trustee). Then, she looked the owner up in the phone book and stormed down to his office to demand an explanation of why her lease was not renewed!
My attorney’s secretary told Ms. Troublemaker to “take a hike” and she never did have a conversation with my attorney. Can you imagine someone having the nerve to do this? Well, I can.
Now Do You See the Benefits of NOT Being the Owner?
If you read between the lines of this scenario you can see the many benefits to not being the “owner” of record. As the property manager, I was just doing my job to not renew Ms. Troublemaker’s lease. I could not be held accountable.
As the Trustee of the Land Trust, my attorney was just doing his job in representing the Beneficiary’s instructions to not renew the lease. And, since the Beneficiary of a Land Trust is not public information, Ms. Troublemaker was checkmated!
Ms. Troublemaker had no choice but to move out peacefully, and I have not heard from her since. Incidentally, there has been peace at the condo complex ever since she moved out.
Break It Down
So, what did we learn today?
We learned that it just doesn’t pay to be recognized as the “owner” of real estate. There are no benefits to public ownership… just negatives. Why would anyone in their right mind own real estate in their personal name (or worse yet with a “partner” on the deed)? Beats me!
Stay tuned as we continue this great series with more helpful Land Trust info soon.
In the meantime if you want to continue your Land Trust education, please feel free to enjoy a webcast training I’ve prepared on how to create your first Land Trust.
Randy Hughes, aka, Mr. Land Trust
Talk to Me
Got any Land Trust question thoughts? Talk to me in the comments section below.
Experiment… take one piece of real estate that you own today and put it into a Land Trust. Then, the next time you sign a lease tell the tenant that you are the Property Manager (you will be telling the truth). Immediately you will notice a difference on how you are perceived by the tenant and the benefits will start flowing to you!
Ask…other real estate investors whether it is better to be the Property Manager or the Owner (from a tenant management point-of-view)?
Learn…how to create your own Land Trusts, you will be glad you did!
Randy Hughes
bought his first single family home for rental while in college in 1969 and hasnít looked back since. Heís since purchased over 200 houses, and has developed a special expertise focused on how to protect your assets and how to become more private with your personal life through the creative, 100% legal and ethical use of Land Trusts. On the topic, Randy has written extensively for national real estate publications, has published a number of Privacy and Asset Protection books including Land Trusts Made Simple, and has been a licensed Continuing Ed Instructor for the Illinois Assoc. of Realtors for 20+ years. He even teaches land trust law and administration to attorneys.