CW 263: Effective Use of Land Trusts for Single Family Home Investments with Land Trust Specialist Randy Hughes

Welcome to Creating wealth with Jason Hartman. During this program, Jason is going to tell you some really exciting things that you probably haven't thought of before. And a new slant on investing, fresh, new approaches to America's best investment that will enable you to create more wealth and happiness than you ever thought possible. Jason is a genuine, self made multimillionaire who not only talks the talk, but walks the walk. He's been a successful investor for 20 years and currently owns properties in 11 states and 17 cities. This program will help you follow in Jason's footsteps on the road to financial freedom. You really can do it. And now here's your host, Jason Hartman with the complete solution for real estate investors. Welcome to the Creating wealth show. This is your host, Jason Hartman, and we are now episode number 263. Thanks so much for joining me today. Well, today let's talk a little bit about asset protection. And here's the thing about this, folks, and I have said it before, at the risk of repeating myself, I don't know what it is about people that when they move their assets from one place to another, for example, if they move them from a bank account to a real estate deal, that makes them think suddenly their whole asset protection picture changes. Look, you can get sued and have your money taken from your bank account or your stock brokerage account or wherever you keep it, just like you could have it taken from your real estate. However, of course, real estate could, as an investment class, create additional liabilities for you. I totally understand that Those additional liabilities, there is a thing for them, a cure for the vast majority of those additional risks and liabilities. And it is called, you've probably heard of this thing, it's called insurance. Yes, I try to have insurance on all my properties. I realize I'm being a little tongue in cheek here. And the reason I'm being that way, if you're a regular listener, you kind of know my feelings about this. If you've come to our events, you know my feelings about this. The reason I'm being sort of snarky about this is because people get so caught up in this thing and it stops them from investing and they miss opportunities because of it. Don't be one of those people. I want you to take advantage of asset protection opportunities like the one our guest is going to talk about today. But I don't want them to stop you from creating assets to protect in the first place. And that's what I see so many people doing. I don't know why, I don't know why? People's brains get sort of mushy when they think, well, if I invest in real estate, I've got to go spend $20,000 in two years learning all about asset protection. No, if you have assets now, they are at risk. And look, folks, the law does not want to let you be judgment proof. We should not be judgment proof, frankly. You know, from a philosophical standpoint, people should be held accountable for their deeds and their things. Now, that doesn't mean you shouldn't be smart and prudent. Of course you should. So that's my disclaimer. I'm not a lawyer and I don't believe our guest is a lawyer either. But we're going to talk about asset protection. Take from it what you will, but the most important thing is that you take action and invest in properties so that you can create more assets to worry about protecting. Okay, so that is my somewhat snarky message on that. And no, I cannot give legal advice. I am not an attorney. I cannot give tax advice either. I'm not a tax advisor. So there are my disclaimers. But boy, oh boy, I'll tell you, I just got back from Houston last night and I was talking with one of our local market specialists in the Houston area and he was saying that his biggest problem is sourcing inventory. It is getting really, really challenging to source properties nowadays. The market has radically changed in the past six months. There were signs of it changing a year, a year and a half, 12, 18 months ago, even 24 months ago, we could see it coming. Now it is changing dramatically. More buyers than sellers, at least in good markets, in good price segments, in investment property markets. It's a constant dynamic. It's a constant thing. We're trying to balance and equalize in our business here with my company. And this is just a constant challenge. The supply and demand continuum, the teeter totter to balance that teeter totter. And now it has in this what I'm going to name, and I don't know if I've mentioned this before on prior episodes, but I'm going to name this the nominal recovery. No, it is not a real recovery. It is not a recovery in real dollars. It's just like the stock market shortly after Obama's election. We had a nominal recovery in stocks. It's not a real recovery. It's just responding to a massive amount of money printing of fiat money creation that is what has propped up the stock market for the last three years. And it's fake. It's not a real recovery. And now, finally, that fake, not real, recovery has hit the real estate market. And it's because we've got dramatically, ridiculously low interest rates and we've got money sloshing around and money that has been waiting on the sidelines to do something. And now it has entered the market and, and is having dramatic, dramatic effects on the income property market. And before we get to our guests, let me just share something with you. Here is what is basically going on. And it is amazing to me that this is even going on in markets that don't really make any sense, like Southern California. Southern California doesn't make any sense from an investor perspective, at least not yet. But it's even heating up there. I mean, multiple offers on properties, inventory diminishing. It is really, really amazing. Can you believe this is happening? After years and years of having all of this foreclosure activity, we've still got a foreclosure pipeline and there are still a couple million foreclosures coming down the pike. But largely it is turning. What are the reasons it's turning so much? Well, interest rates so low that you're getting paid to borrow right away because real inflation is much higher than current interest rates. And even the officially quoted inflation today is at par with interest rates that you can borrow for three decades. Institutional investors, hedge funds, private equity groups are out there buying anything and everything. Homeowners. Homeowners who are upside down on their properties, they're not putting them on the market like they were. And I'm going to tell you something really interesting about that in a moment. Very, very few properties are being built. There's very little new home construction. However, there is a little bit that's definitely picking up. But remember, it takes a long time to ramp that construction machine up. So the builders are out there and amazingly, they're coming back. You know, I talked about that on prior episodes. My email box. It's like it was four, five, six, seven, eight years ago where it is starting to fill up with new homes being built, being offered. Remember, I'm in the real estate business. I have a real estate license. So I'm on all these email lists that the builders send out, broker co op, they call it, where they'll pay a real estate commission to a broker. And they're trying to woo brokers and agents into bringing their buyers into new home tracks. Wow, that's happening like crazy all of a sudden. It's amazing. And then just the regular advertising that you see from developers, from real estate developers toward potential new home buyers and Owners that are upside down on their properties, that are underwater, that don't have equity, well, they're not putting their homes on the market like they used to. They're kind of thinking, well, you know, hey, many of them aren't even paying their mortgage, so what's the urgency? Why should we sell? Right? They've been either defaulting by necessity or they've been strategically defaulting. And the lenders are still very, very slow to boot them out of the property. And I'm going to tell you some an amazing story about that here in just a moment. Owners who have equity in their homes, but they've seen that equity decline in the bad market, they're waiting out the market and they're kind of seeing multiple offers now. So they're not running out to sell their properties because, hey, they're thinking we're on the verge of seeing some real price appreciation. Now, by the way, that's I should catch myself on what I just said, right? Why should I catch myself? Well, because real, it's not real price appreciation. It's nominal price appreciation. It's a nominal recovery created by inflation. But that doesn't mean that the way I recommend we invest, we can profit from that dramatically. And many of the people listening to this show are following my plan. I'm following the plan. And we've got some really, really good times ahead, don't we? We really, really do. Well, let me share a little article. And have you heard those commercials on talk radio? They're playing all over the country. Because when I'm traveling around to the different markets and I'm in the rental car listening to AM talk radio, I'm hearing the commercials. And of course in Phoenix and on my iHeartRadio app, on my iPhone, when I still listen to Southern California talk radio like kfi, I hear the commercials too. And it's a real sign, you know, and they've been circulated all over the Internet to those End of America videos. You know, maybe you've watched that long video. It's pretty hot video on YouTube. And you know, some of it I agree with, some of it I don't. And the guy promoting them is trying to sell his newsletter and he's probably doing a great job of it, making a lot of money selling the newsletter. And I think that is the same guy who's the author of this article I'm about to share with you. And that's Dr. Steve and forgive me, I cannot pronounce the last name, but it's S J U G G E R U D and you know, he's kind of in this sort of group of Internet marketers that is kind of the Agora financial type group and I've interviewed a lot of those people on prior episodes and you know, they've got a really interesting take on things and I like to follow their work. But you know, again, I have some my disagreements with them as well. But in this article that he published on in Feb. Back in February, okay, so it's a few months old. He says the greatest opportunity is about to pass you by. And it says you are foolish if you do not do everything you can to take advantage of this. It's probably the greatest opportunity for you for the next 10 years and it is here now. Time is a wastin actually, you're about to miss the best moment if you don't get on it right now. The V quotes, the V bottom as I call it, where you can get the very best prices is passing you by. I can't know for certain, of course, but I'm more convinced what I'm saying than I have been about any other investment in my two decades of studying investment. My friend, the time has come. It's time for you to buy a house. Now here's where I part with his advice, by the way. He says preferably a primary residence. No excuses, no delays, just figure out how to make it work. Already have a house, go get another and rent out the one you're in upside down on the one you've got. Do as Karen Farley did. Farley was upside down by $200,000 in her house and hadn't made a mortgage payment in a year. Now, folks, my comment haven't I been talking about this on prior episodes? And here is yet another example of what I've been talking about. Back to the article, her mortgage company sent her letter saying, quote, you could sell your home, own nothing on your mortgage, and get $30,000. Farley told Bloomberg News, quote, I wondered why they would offer me something like that and not just give me the boot. Instead, I'm getting money. Unquote. According to Bloomberg, Farley is, quote, also approved for an additional $3,000. Through a federal incentive program, Farley gets her $30,000 check today plus the $3,000, and she'll use the money to cover moving costs and a deposit on the new place she lives in. No joke, the full Bloomberg story is worth reading. You know, I'm sure you can Google that folks, and just find that story. But look, it's and this is me talking. It's not like I haven't been talking about that on several prior episodes. It's not just Farley, of course. Literally millions of upside down homeowners are eligible for these types of deals. My comment these are the types of deals where the bank is actually paying you to do what they call a cooperative short sale. They are giving you checks for up to $30,000 to do a short sale. It is mind boggling. It's upside down. It makes no sense. It's rewarding, the wrong behavior. But folks, that's what's going on out there. So if you're in that position, I urge you to listen to my prior episode on Strategic Defaults and learn how you can make that work for yourself. Okay? And watch those letters coming in the mail from your lender so back to the article. Banks desperately wanted to get rid of these properties at any cost now. And the government desperately wants to help homeowners now. It's doing everything from passing out checks to reducing mortgages and more. Here's the latest. You can just sit back and complain about these people who live beyond their means and are getting off way too easy. But the smarter thing to do is to go out and take advantage of the situation. The deals happening now are ridiculous. A friend of mine just bought a five bedroom three bath house, a decent neighborhood for $70,000. He bought it in a foreclosure auction. Now folks, I think you got to be really careful of these auctions. That auction hype is overblown. There can be unknown liens against the property. The auction business is largely for professionals, but heck, you can buy the properties from those professionals. Of course you'll be paying them a little bit of a premium for their services, but it's still worth it because you're going to be buying from our local market specialist far below the cost of construction. Right back to the article. He's going to put a coat of paint on it and price it well below market for a quick sale at $129,000. This is just one example. The point is banks are finally willing to get rid of this stuff and investors like my friend are willing to step up. Buyers and sellers are finally seeing eye to eye. That means my comment. We are at a market of equalization there where buyers and sellers are seeing eye to eye. This is your moment. The opportunity for you to get a really great deal is just about to end. I believe this is the greatest opportunity you will have in the next 10 years of investing. As far as risk versus reward, you see Your downside risk is extremely low as homes are selling way below their replacement cost and you're essentially getting the earth itself for free. With homes dramatically below replacement cost and with mortgage rates at record lows below 4% for a 30 year mortgage, in some cases, houses in the US are more affordable than they've ever been. And we all know the recent housing bubble was the greatest in American history. But what most people don't understand is, is that houses are more undervalued right this second than they were undervalued during the bubble. The median house price in the US is about 165,000. In order for homes to return to normal, unquote values, they'd have to rise 55% to 256,000. I'm assuming that mortgage rates, incomes stay flat and affordability returns to normal at 130 on the affordability index, that's a gain of $91,000. If you'd bought a home with 20% down, you'd have put $33,000 down to make a gain of $91,000. Not counting any other cost. That's a profit of a whopping 175%. The gain will happen, I have no doubt in my mind. The only question is when will it take three years, five years or 10 years? I don't know. But it will happen. Even better. If the property you buy is your primary residence, he says you basically have nothing to lose. Even if I'm completely wrong, he says, and home prices go nowhere, you have at least lived rent free for a few years. Now, I disagree with that because you could own an investment property and you would have done far better. And listen to his next point. Again, I think he misses it. He says, but if I'm not right as your primary residence, this 175% profit would be completely tax free. Gains on your primary residence are basically the last legitimate tax free shelter. Well, actually I disagree with that too because on an income property you make it a much more multidimensional asset and it performs far better than your primary residence. And you can do a 1031 tax deferred exchange and basically defer the tax for the rest of your life. But the first question is why would you even sell it anyway if it's producing income and phenomenal returns? Keep it, don't sell it. Actually, I believe you would do even better than this. The article says if you buy right now, and I mean right now, you should be able to get in below market prices. You got to do this in the right market, folks, obviously you get a property from a desperate seller, the better value you get right up front. And when things return to quote normal, unquote, and yes they will. Housing is cyclical. We go through periods of overbuilding and underbuilding. Now is the time in the cycle you want to buy. When will things return to normal? I do not know the answer, he says, but again, this is a potential for 175% tax free gain. And the article goes on and on, but I agree with most of it. You should be buying up property like it is going out of style because folks, the balance has tipped and it's a nominal recovery. It's not a real one. Why isn't it a real one? Because the dollar is being devalued at the same time. And that means all of these people out there who do not buy and who do not buy with leverage are going to be hurt as their dollar buys less and less over time. So get into the market as quickly and as deeply as you can. Follow my 10 commandments of successful investing. Diversify, use leverage and take advantage of the greatest, most tax favored asset in America, the most historically proven asset class and that is income property. So keep listening. We've got a lot of future shows on that. But let's go to today's guest and let's talk a little bit about land trust and how you can use them as a simple asset protection vehicle. And we will be back with that in just a moment. Are you interested in a property outside of our network? Do you need a second opinion? No problem. Let Jason's experts evaluate the deal. Our deal evaluator is only $50. For more information go to Jason Hartman.com now. My pleasure to welcome Randy Hughes to the show. He is an expert in land trust and of course real estate investing. He's been investing for about 40 years. He's been using land trust for about 30 of those 40 years and we're going to learn about his techniques today. Randy, welcome. How are you?

Thank you, thank you. I'm very good.

Good, good. Tell us about your investing experience. First, have you always invested in, you know, just single family homes or have you done other stuff?

Well, I have done other things. I do have a commercial building and I've tried restaurants and other.

That's a tough business as well as real estate.

But to tell you the truth, I got pretty good at losing money in everything except real estate. So over the years I evolved into just the single family house as my one and only form of investing.

Okay, good. So the single family home has really been the only tried and true investment for you then it sounds like, huh?

Yeah, it really has. I mean, and I know we're in difficult times right now as it relates to single family homes, but there are good times in the future. It doesn't seem like it right now, but there will be. The market will come back.

Oh, listen, I tell you, you don't have to say that on my show. I think this is a phenomenal time. What people don't realize so many times, Randy, as you well know, is that income property is a multidimensional asset class. It's not just about appreciation. You can make a fortune just off cash flow. I mean, the cash on cash returns, the property could, the value could go to zero. And as long as you're getting that rent and maintaining your expenses where they should be, I mean, the cash on cash returns on some of our properties are between 13 and 18% without any appreciation. And then you get tax benefits to boot. And I mean, this is a phenomenal time. Anyway.

I'm glad you mentioned that because the other benefit that you can count on, even though you cannot count on appreciation, but you can count on amortization of your loans. You know, if you want to be a millionaire, go out and borrow a million dollars and have somebody else pay it off for you and that's your tenants, and you'll be a millionaire if you never have any appreciation the rest of your life.

Yep, I agree.

There are lots of reasons to buy. And your listeners are going to look back. I predict in 10 years they're going to look back and say, man, I wish we would have bought more back then in those days when the prices were so low.

Yep, that's for sure. And when the interest rates were so low. And I don't think it's going to take 10 years for them to look back regretfully at missing opportunities. So I hope they don't miss opportunities because the opportunities are pretty phenomenal now, no question about it. And I think, you know, Randy, what this really comes down to is not just an issue of price, of course, but of the price of financing. And like you said, if you want to be a millionaire, just borrow a million dollars, outsource the debt to your tenants, let them pay it off for you and that's going to be paid off and then you will have gained a million dollars even if you don't have positive cash flow, if you don't have tax benefits, which of course you do have all this great stuff if you don't have appreciation, which you will as well. So with land trust, I mean, why should this be attractive to people?

Well, especially in this market. And I think a lot of people have come to realize the importance of privacy. A land trust by itself is not a great asset protection tool, but it is a great privacy tool. I use corporations and LLCs and all these other entities that investors and their attorneys recommend. But I always start with a land trust entitled to the real estate first because it hides ownership, it allows for a private transaction. In fact, there are so many benefits. I wrote a booklet called 50 Reasons to Use a land trust. And if your listeners would like me to send that to them for free, I would be glad to do that. Just send me an email. It's randyalestateforprofit.com that's realestatefor f o r profit.com and put in the subject line 50 reasons to use a land trust.

So tell us what some of those reasons are.

Well, privacy certainly is the first thing because if nobody knows you own it, you can operate at the trust level, which is a great level to operate at. Instead of everybody tracking your every movement through the courthouse records. And whenever you sign a mortgage, it gets recorded in your name. Then your competitors and your creditors and everybody else on the planet can track your activity. So the first step in asset protection is privacy. And the land trust gives you that privacy.

Well, let's talk about that though, on the privacy note and maybe now we have to take a break from the reasons for just a moment here and we'll get back to those. What is a land trust? I mean, how do you set it up? People can have some degree of privacy inside of other entities like LLCs, especially if they're in the privacy favorable states like Nevada. But what is a land trust? Tell us what that is. Can you borrow money in it?

Yes, it's nothing more than a few pieces of paper. A land trust is two documents. One is the trust agreement that does not get recorded. And that's the agreement between the trustee and the beneficiary. And the other document is the deed in trust. And that does get recorded just like any other deed, and that's what funds the trust. So you can set up a trust by signing the land trust agreement and have nothing in it. But if you then deed record your deed for the property to the trust, now you've funded the trust and there is a piece of real estate in there. Now it's that simple. You record a deed. Now let's go back to what you just Said about other entities. Yes, you could put your real estate into a Nevada llc. But just think about that logically. What if you own more than one piece of real estate? Are you going to have the title held in one entity or do you want to put every piece of real estate you own in a separate entity to insulate it from the other entities, the other properties? I advise my students to put every piece of real estate into its own separate entity land trust. Don't put anything else in that trust. And just from a logical standpoint, think about it. If I was going to attack you, and I know you have one trust with everything in it, and I attack just one property in that, in that trust that's got 10 properties in it and I win a judgment against you, I've got that whole trust all tied up. Even though the problem only related to one property, you've just tied up 10 property.

Okay, so separation and firewalling. I mean some people do that with multiple LLCs or they do it with a series LLC that's got 16 parts to it. And so that makes, certainly makes sense, segmentation. But the thing I'm concerned about, and this is really the problem like with LLCs. And I find, Randy, it's unbelievable how many investors, I just think they just over complicate a lot of this stuff. They'll come to one of my live events, they'll be listening to the show and they'll somehow ask me maybe at a break at a live event or whatever. Well, you know, I'm being told that I should set up a couple different LLCs and all this stuff. And I say look, do you own any property? No, they're just starting out, they're like beginning investors and they want to put the cart before the horse and worry about all this asset protection stuff. And with the LLCs, what they don't realize is that financing becomes a problem, insurance becomes a problem. Because like I've got an LLC that I buy single family homes in and I gotta tell you, the only reason I have it is because it's inside my IRA and I want it self directed like that. But it's a hassle every time I buy one of those because insurance costs a lot more. There aren't many insurance companies that want to write insurance in the, you know, in the name of an llc. Now if you do properties that are over four units, that classifies them as commercial properties. So if it's a 5 plex or a 200 unit apartment complex, then it's easy because all of the lenders all of the insurance companies expect you to use entities, but in these single family homes, it's just problematic or, you know, a triplex or a duplex. So does the trust solve that problem?

Well, yes and no. Let me briefly explain. If you're financing that piece of property through a loan, that's got to qualify for the secondary market guidelines. In other words, you're going to bank of America or Chase or any of the big boys and you're getting a loan, they are going to make that loan subject to the secondary market guidelines. And those guidelines say you cannot close a deal using a land trust. You can put it in the trust the day after closing, but you've got to be there and you sign all the documents the day of closing. So of course, you're limited to nine or ten of those loans. And then it doesn't matter if you want to buy an 11th piece of property, you can't qualify for a secondary market loan anyway. So now you're forced to go to the commercial lender, the portfolio lender, and those are the guys I like anyway, because they make their own guidelines. They don't have to meet all these huge federal government standards. And they will let you close taking title directly from the seller to your trust, which keeps your name out of the chain of title. And that's another key element to asset protection, is to never take title to the property. Now, in reference to financing, let's look at the other side of it. Let's say you're going to sell the property and you want to sell it on a contract, and it's in an llc, that presents an entirely different set of problems. Whereas if you have it in a separate land trust, you can sell the beneficial interest on a contract, and if default occurs, you can repossess that beneficial interest instead of having to foreclose, which will save you at least a year in the judicial system. And for the professional crook, they will string you out for a year, and then the day before foreclosure, they'll declare bankruptcy and string it out another six months. That doesn't happen when you sell the beneficial interest of the land trust. And that's the one of the big, big reasons to use these trusts, especially if you're ever going to be selling property on a contract.

So financing, though, you can't do financing, mainstream financing through a bank and use the trust, right?

Not if they're going to sell the loan in the second day of market.

Okay, so meaning they sell it to Fannie Mae, Freddie Mac, et cetera. So what about insurance?

Insurance is, and I explained this, I've got a home study course where I've got a whole chapter on how to insure a land trust. But the short version is the insurance policy needs to be in the name of the owner of the property. Which sounds logical. Well, the owner of the property is the trustee because when you put your property into the land trust, the trustee has full legal and equitable title to the real estate. So sometimes the difficult part is making your agent understand that you are not the owner, that the trustee is the owner, and that the named insured on the policy needs to be the trustee. And then we go take it a step further and we say the trustee and all beneficiaries as their interest may appear. That prevents you from having to put your name on the policy as a beneficiary and exposing your privacy element. So it works like a dream, but sometimes it takes hitting your agent over the head with a hammer to get him to understand it. But the bigger companies, State Farm, Westfield Insurance, Cincinnati Insurance, they all understand how the game works and it's not a problem.

Okay, and what if someone listening has properties now and they want to put them into a trust? Would that trigger a tax liability? Would it trigger a due on sale clause? Would it trigger any other financing or insurance problems? Or maybe like the leases on the properties need to be rewritten too because now it's a different entity they're paying. Do you set up a bank account for your trust? Lots of questions there.

Yeah, just the mechanics. Yeah. No, we don't set up specific accounts for each trust. You could if you wanted to, but they're still going to ask for your personal Social Security number from the bank when you open those accounts. A land trust is a pass through entity in the eyes of the irs. That means you don't get an Fein number for it. You do not file a tax return for it. You file all the information from that property that's in the trust directly onto your 1040 tax return. Schedule E, the same place where you had it before you put it in trust. That same information went on your Schedule E. It will continue to go on your Schedule E after you put it in a trust because the trust is a pass through and to pass in reference to financing. When you get a loan with a trust, the trustee signs the mortgage that gets recorded in the name of the trustee. The beneficiary typically will sign either a note or a guarantee that the banker keeps in his file and does not get recorded. So his anonymity can be continued as it relates to that property. What's really interesting about this is that one of the byproducts that you don't think about until you've done a few of these is if you run, let's say you run Jason's credit report and everything he's ever bought, he bought in the name of a trust, that debt isn't going to show up on your credit report. That might make your mind wander.

Yeah, well, that's mostly good. It's bad in the sense that if you want to establish more credit that you're paying on, you want it to show up. Actually, that'll improve your FICO score. But who are those loans through? They're not going to be major bank loans anyway, so they're going to be private financing. I mean, who are you going to get to finance for the trust?

A regional bank. A regional bank? I live in the Midwest. I love Midwest banks that are, for example, out in the country. You're driving down the road and you see a bank come up out of the ground and you stop in and meet the president, shake his hand. They make a loan to you, to your trust, you guarantee it. And there are lots of regional banks. You don't have to be in the Midwest. There are lots of them in California and Florida and all over. I just don't deal with the big boys, the Chase, the Bank of America, because they've got too stringent of guidelines backing up a little bit. To answer your question about people that already have property in their name, Jason, I get this question all the time. Well, should I even bother taking it out of my name if it's already in my name? And the answer is yes, because of those 50 reasons to use a land trust, you may miss out on one of them because you didn't put it into the trust from day one. But you got 49 other reasons to still use a land trust. For example, selling the property on a contract or avoiding due on sale or avoiding reassessment upon sale. If I sell you the beneficial interest in a land trust, Jason, that does not get recorded anywhere. So if I sold it to you for more money than I paid for it, the taxing body isn't aware of that. To reassess and increase your real estate.

Taxes, your property tax is what you're talking about. Yeah, that's right. But even if they're not aware of it, don't you have to tell them? Don't you have to proactively tell them or you might get in trouble?

Well, it Depends on what state you're in. Some states do have, do have that rule, they have that law that like in Florida they've got the law there. In Illinois they have that law. But most states don't have that law. So it just depends on what state you're in.

Okay, so there were 49 other reasons that we didn't even discuss yet. Give us a few of your favorites.

Well, I like the ease of transferability and the ease of linking these trusts together with other entities from a transferability standpoint. As I mentioned, I could sell you the beneficial interest in my land trust and we could do that deal this afternoon and we don't have to go down to the courthouse. Nobody knows what you paid for it. So if I'm selling it for more than I paid for it, that profit is not made public. It's a one page document to assign that beneficial interest to you when you buy it from me. And the title remains in the same trustee's name, although you could change it if you wanted to as the new beneficiary. You could certainly change the trustee if you want to or just keep my trustee so very easy to do transactions that are below the surface where people aren't tracking it. We talked about the linking together of land trusts with other entities. I like LLCs, I like the Series LLC. I like Nevada corporations, I like Wyoming LLCs. But I don't title anything in the name of those LLCs or corporations. The title goes first into a land trust. Then the beneficiary of the land trust might be my Delaware series llc.

Why do you do that? Why just have two layers? Tell us about that.

Number one is asset protection. I've got another layer and when you really get into the study of this subject, which I teach, I have a basic course and an advanced course on my website. In the advanced material we get into the benefits of having multiple layers ownership. But one really interesting point here is I had a seminar the other day in San Francisco and right front center was a CPA and he and I tangled right away over the subject of do I have to register my LLC in California if it's the beneficiary of the land trust that owns property in California. Now if you title California real estate into a LLC directly into the name of the llc, you have to register that LLC in California no matter where the LLC is domiciled and pay the wonderful $800 a year that they're going to assess to you in California.

California is the rip off state of the universe. The socialist republic of California.

If you title that California real estate into a California land trust, and then the beneficiary of the land trust is your Delaware llc, you do not have to register it in California. That just saved you $800 a year. And here's the reasoning. This took about two hours. And finally the accountant raised his hand. He says, you know what? I've been thinking about this, and you're right, Randy. The reason why is the beneficiary of the land trust is not doing business in California. The trustee is doing business because he owns real estate in California. But the trustee of a land trust is not required to be registered in the state of California or any other state. See that the big picture here, Jason, is there's no federal land trust law. It's all state by state, and some states have better laws than others. And you can set up a, you can set up a Virginia land trust, for example, to hold title to property in California. And from an asset protection standpoint, now you're really getting the leg up because you've now taken it out of state that the legal issue has now gone out of state instead of being an in state issue during a lawsuit. So linking these trusts together with other entities is very, very valuable to you from an asset protection and privacy standpoint.

Let me take a brief pause. We'll be back in just a minute. Did you know that you can call into the Creating wealth show? Yes, you can call me and talk to me direct for later broadcast on the show. The number is 949-20080 or via Skype Jason Hartman, ROI. Please make sure you have a good connection when you call. Get your questions answered, participate in the show and share your experiences with other investors. Call in 949-200-8009 or Skype Jason Hartman, ROI and participate in the Creating wealth show. On the credit issue, what you said about credit, how it doesn't show up on your credit report, I mean, assuming you can get financing, which you say you can with regional banks and such, assuming you can get financing, it doesn't show up on your credit report. This, that was when you said that it was reminiscent of, I've heard those people talk about, like establishing business credit, corporate credit. A lot of those things I believe are scams.

Yeah, I don't think, I don't think that works.

Yeah, you know, I think it's kind of like something where there's some truth to it and it could work in certain cases. But, but one thing I do know about it is that if you get the business credit. You do have to guarantee it the way you said with the land trust. Same thing, but. And it doesn't show up on your credit report as debt, which is good and bad, depending on where you are and how you need to manage your FICO score. But if you default, it does show up on your credit report. So the good part, when you're paying the debts, never shows up. But the bad part, when you default on the debt, does show up. So, you know, that's just sort of a little nuance.

Well, yeah, eventually it would show up. Now, the foreclosure wouldn't show up in your name. It would show up in the trustee's name if you were being foreclosed on.

Well, yeah, just make a distinction there. If you would. That means the foreclosure wouldn't show up in the county records under your name, but it'll still show up on your credit report, right?

Well, it depends on what you signed. If you signed a guarantee, then they have to go through the entire foreclosure process. And then when the dust settles, they come after you as the guarantor. And if you don't pay that, they can get a judgment against you in court and then collect on the judgment. So the judgment would show up as a, as a filing at the courthouse ultimately. But the foreclosure doesn't because you never sign anything to be foreclosed on.

Okay. All right. Interesting. Okay. What else should people know?

Oh, gosh. Land trusts can, can be very beneficial from estate planning standpoint. For example, they help you avoid probate. Typically, if you die, your assets are going to be probated and tied up in court and an attorney charging attorney's fees to settle the estate. But if you own a piece of real estate in a land trust and you are the beneficiary, Jason's the primary beneficiary, and Jason makes his 20 year old son the successor beneficiary when Jason dies. That moment that Jason dies, his 20 year old son becomes the beneficiary. It doesn't have to go through probate. It's automatic.

Right. So you, you, you, you don't, you don't pay the government and the lawyers a bunch of money. That's good. There are so many different types of trusts that you hear about. You hear about a revocable trust, an irrevocable trust, a living trust, an inter vivis trust. Same thing, a spendthrift trust. I mean, there's like a zillion names for these things, but trusts are really there's really just one kind of trust, right? And then why do they get those other names tacked onto them?

Well, that's a very good point. And that's one of the reasons why it's so difficult to get accurate land trust information anywhere, let alone from an attorney. Number one, they don't teach lawyers trust law in law school. And after law school, most lawyers don't learn it because there's not a lot of money in it. And I don't blame them for that. But consequently, it's very difficult to find anybody that can help you set up and administer your own land trust. Now, here's where the confusion comes in, Jason. Those attorneys and practitioners and advisors that do study trust laws, study about most every other kind of trust other than the land trust, and you can almost divide the world into all those other trusts and land trusts. Here's how to understand the difference. All the other trusts other than land trusts are typically trustee driven. And what that means is the trustee makes the decisions as to what goes on with the property and the trust. There's a fiduciary relationship there between the trustee and the beneficiary. He's got to look out for that beneficiary's financial interest or he can be in legal trouble. The land trust is beneficiary driven. That means the beneficiary makes all the decisions. The trustee doesn't do anything unless he's directed in writing to do so by the beneficiary. And that's the significant difference between a land trust and other trusts. In addition, land trusts are for real estate and real estate related assets, like a mortgage or a contract of sale or an option on real estate. And of course, apartment buildings, office buildings, condominiums, single family houses, all types of real estate go into a land trust. You don't put a motorhome in a land trust. Now, having said that, I wouldn't take title to a motorhome either in my name. In fact, in my advanced course material, I provide a very sophisticated personal property trust because I would advise everybody to hold their personal property in separate personal property trusts as well. So your car goes in one trust, your boat goes in another, your shotgun, your ladder, anything with liability to it should be in its own separate personal property trust. And the beneficial interest of a land trust is personal property. So, for example, you could even hold the beneficial interest in your land trust not in your name personally, Jason, but in Jason's personal property trust number 234. And that adds another layer. So you know it Just depends on how sophisticated you want to get. You don't have to get real fancy to at least get the anonymity factor. But I would really encourage your listeners to think seriously about getting everything out of their name, getting it into separate trusts, and then either being the beneficiary directly or having one of their entities being the beneficiary of these trusts.

Now, how much does it cost to set up each trust? Or is it basically nothing to do it because they're not entities, they're not recorded at a certain state. There's no filing fee. Right. Because you don't require the trust.

The only cost, Jason, is the cost to record the deed. Now, your listeners need to learn how to do this and learn from somebody that knows what they're doing. And that's why I put together a home study course that can be found on my website@realestateforprofit.com realestate for f o r profit.com they can go there and they can get the basic course, they can get the advanced course or a complete package, which is the basic and advanced together. And that's all they'll ever spend the rest of their lives on, land trust, because that teaches them everything they need to know. And it gives them all the forms they need. And from there on out, the only continuing cost will be the cost of recording that deed. Maybe 20, 25 bucks. Other than that, they just load it up on their computer and they spit these things out all day long.

Who records the deeds for you? Your escrow officer, your title officer, or who can you get to do it?

Well, it depends on the transaction. Sometimes I'll record it, sometimes my attorney will record it, and sometimes Chicago Title, who is a company I use exclusively, they'll record it. So it really doesn't matter who does it as long as it gets done.

All right, well, anything else you want people to know in closing, Randy?

Yeah, I would like to close with the land trusts are not as difficult as people like to make them they are. My course guide, for example, is 106 pages. It's not a lot of legalese. It's written in down to earth, easy to understand language. You can learn this stuff if you're a real estate investor and you understand that, you can certainly understand this, and it will really set you apart from the whole rest of the town that you're dealing in. Your competitors won't be able to track you. Nobody will know what you're doing. And it's just a nice feeling. You go to bed at Night, and your head hits the pillow, and you can go to sleep not worrying about what's going on at the courthouse. With everything that you've signed and been recorded and people tracking what you're doing and following your every move. I think it's important as a real estate investor to do things on a confidential basis. And certainly you need to add. The more property you get, the more net worth you get. You need to add the asset protection element, and that's where you learn how to link these trusts with other entities. So the land trust gives you the privacy. The other entities gives you the asset protection, and you get the best of both worlds.

And, Randy, I guess that leaves room for one more question in closing here, is that since privacy is the main benefit, any suggestions on naming these trusts? Because this name will be public record, and so it should not be the Hartman family Trust. Right. It should be something generic.

Oh, Jason, I'm so glad you brought that up. I could talk about trusts for days at a time, but I have a whole chapter in my course material, one whole chapter on how to name your trust. Because so many attorneys that will help you set up a land trust will say, all right, you got 10 single family houses. Let's dump them all into this one land trust, and let's name this the Randy Hughes Land Trust.

Yeah, not good.

Not good. I've even seen Jason Social Security numbers put in the name of a land trust.

Oh, my gosh.

And then record it.

Wow.

Yeah. There's a lot to Just the name. And let me give you a quick example. If you were looking to sue a trust for whatever reason it might be, and you looked up and the name of the owner of this property was the California State Disabled Children's Trust, you might think twice before you'd want to sue that trust.

Oh, interesting point.

It would certainly set you off balance from day one. As opposed to. If I looked up the name of the trust was the Jason Trust, I'd say, hey, I got the right guy. I'm going after him. But you. You can name these trusts whatever you want to, as long as you don't infringe on copyrights.

Yeah. Or trademark.

Or trademarks. So, you know, I could name it the. The Florida State Retirement Fund or the. Or the Chicago. I could call it the Chicago Lawyers Investment Account.

Oh, boy. They're not going to want to see that one.

No, no, no, no. I wouldn't think you want to take them on. So there's a lot of psychology behind just naming it. And then there's More psychology behind the number of the trust. Because I teach people to name and number their trust and we don't just number them 1, 2, 3, 4, or like a lot of attorneys do, they'll say put the address of the property in the name of the trust. Well, that's really stupid. But let's think in reverse here. Let's put a little reverse English on that thought process. What if we name the trust the address of a property that's not in the trust? So if the property that's in the Trust is on 123 Vine Street. What if we named it the 234 Harrison Ave. Trust? That might really throw you off and certainly make your attorney run up another four or five hundred dollar legal bill for you to pay. Just trying to figure that one out. So unfortunately, the legal system in America has run amok. It's not about who's right and who's wrong. O.J. simpson proved that to everybody. It's a matter of who's got the deepest pockets and who understands the legal system. And I'm not teaching people this information to have them take advantage of anyone. But I do want them to learn how to defend themselves against what I call the terrorists of the 21st century. And that is the contingency fee lawyer. That's where you're going to get yourself in trouble. And that's who we're trying to throw the dogs off on.

Good stuff. Well, Randy Hughes, thanks so much for this lesson today. Very interesting and very good to have this knowledge and everybody. I hope you'll take advantage of it. You already gave out your website so people know where to learn more. Thank you again, Randy. Appreciate it.

Thank you, Jason. Take care.

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