When Do I Put The Property In A Land Trust?
Working another short sale and tomorrow I am signing a purchase & sale agreement with another homeowner. I want to begin putting my properties in a Land Trust and I wanted to make sure that that step is done correctly. I only put the property in a Land Trust when I am buying the property (signing the deed at attorney's office) and NOT tomorrow when I simply sign a sales contract, right?
My understanding is that the bank won't short sale under a land trust unless it is already in one. First do the short with the bank, take title, then deed into a land trust. All my properties are in land trusts. When I do a short, that's what I do.
I have a question, have you had any success buying the properties through your LLC? or signing in the name of the LLC so that recourse is limited?
Stockpro,
I am a new investor but have been taking a bunch of classes so I think I can give you some of the insight I have learned. Not sure how helpful but here it is.
You can move the property to the trust, or to an LLC, S Corp. The most recommended way was to a trust with the LLC if holding, and S corp if flipping, as the beneficiary.
You wait until the sale is done, and will have to sign the note in your name directly, banks will not allow corp to sign note.
I do not remember if you do a deed transfer or quit claim. If you have title insurance one of the methods will mess up the insurance, so you will need to check which way will keep the insurance in effect.
S corps allow for better tax protection if not holding the property long term. Also to have an S corp for the management company if you are landlording. LLC better for properties if holding. IRS also likes you to seperate properties between entities one LLC/S for flippers, and one for holding. That way there is not a question of motive in the begining.
Hope this is what you were asking about and was somewhat useful.
Victor
Here's what I was taught concerning holding vs flipping. LLC'S and S corps are for manangment and holdings and C corps are for flipping.
Land trust (that holds your property)should be willed to your LLC and or S corp to avoid inheritance tax ( the 50% tax)with your potential heirs as members of the corp in which you have willed your property. If I have been misguided, please advise.
Separate entities (LLC, Corps...) give you 2 main advantages.
1) Tax savings. Everything you spend as a corp or LLC is pre-tax; deductable.
2) Separation of liability. If you goof up on a property, the corp gets sued, not you. Your personal property cannot be touched. (As long as you follow the rules)
Also consider a C corp. In my opinion, it provides the greatest protection. To fully understand entities, I absolutely recommend 'own your own corporation by Garrett Sutton and Kiyosaki. Awesome info!
Any bank should let you buy properties under your business entity and you should sign 'your name, President, XYZ, Inc.' However, it is true that for the first 2-5 years, the bank will also require a personal guarantee from you for the loan, because, in the same way that a corp prevents you from being sued, a corp could file bankruptcy without hurting you personally. Hope this helps on that point.
Oh... The reason I like C corp better is simply because it seems to add an extra layer of protection. S Corps are more vulnerable in my opinion to a 'lowering of the veil' of the corp.