Florida Land Trusts v. LLCs

[Sarah Vann DuRant]

Hello everyone! 

Working on a few STR deals with savvy investor sellers and we are wrapping some really low interest rates so the DOS clause concern is very much alive… We have decided to go the land trust route w/ one of the properties to try to be as careful as possible. I've only done one of these and the seller was well versed and kind of led the way so now it is my turn to get educated on it 🤓

After lots of reading/listening/learning I am wondering why do we all tend to use LLCs more than Land Trusts in Florida? Making this state specific simply bc his is apparently the only state where the trusts provide asset protection like an llc.. Obviously in a creative transaction there is extra appeal but even without the creative aspect it seems like a primo option - am I missing something? lol

[Russell Holmes]

I've been involved in two JV BRRRRs with Land Trust ownership structure, the one we still own happens to have Joe Seagle's company as trustee who replied above. Certainly reach out to him for expertise. We did a second Land Trust deal with another local company as trustee and had absolutely abysmal service. I won't name that company, but I will highly recommend mylandtrustee above ^.

One huge perk of Land Trusts and part of the reason we used them for the JV BRRRRs was that ownership percentages could be changed through the project by reaching out to the trustee and doing some straightforward documentation. Small fees involved, but nothing publicly recorded. If you have an LLC, ownership percentages are recorded and thus difficult and/or costly to change if an active partner is earning equity through actions.

To give some personal experience, Lending and banking can be difficult at best, impossible at worst with a Land Trust.  That isn't always relevant to a deal, but worth consideration. The beneficiaries are all hidden from 'adversaries' who may want to sue you, but you must pierce that veil of protection when it comes to lending.  It still doesn't become public knowledge, but the lenders do want to know who's really behind the land trust, for obvious reasons.  With both land trusts, we were denied bank accounts at almost every bank we tried, Seacoast Bank being the only one who'd touch it.  We had to 'pierce the veil' and have an underlying partnership agreement, bank account in the partnership name rather than Land Trust name, but it did work out to open an operating account for each property.  

On the lending front, it all depends on what entities are the beneficiaries. Again, they are hidden from all....until you want a loan. If individuals and/or LLCs are the beneficiaries, then it is doable.  Muddy up the waters more than that and it can become impossible to leverage.  Then the trustee and the beneficiaries will need to come forward to sign some docs, someone will have their credit pulled, etc...

The property we still own in a Land Trust, the beneficiaries are an LLC and an individual person. With this set up, we were able to get a DSCR loan through Kiavi with only a few extra steps compared to an LLC. Every other lender I tried, over 25+ of them, refused to touch a land trust and told us we should have done an LLC. Kiavi was at first unsure, but ultimately made it happen with the Land Trust in place. This was back in late 2022 and I think it was new for them at the time so I imagine they still do it.

Our second land trust, however, turned out to be un-lendable due to our mistake of making the beneficiary structure too complicated. We were under the impression that it wouldn't matter since we hadn't refi'd the first yet to learn, but found out how wrong that was. We had more partners (beneficiaries) on that one, and it ended up being two individuals, an LLC, and a Self Directed IRA (SDIRA), each with percentages of the whole. That SDIRA is what threw the wrench in things. Kiavi, the only lender who'd touch a land trust, ran it up the ladder with their legal team. Had the ONLY beneficiary been an SDIRA, or even multiple SDIRAs, they'd have been fine. Or if that SDIRA wasn't involved at all, they'd be fine. But the mix of individuals, LLC entities, and the SDIRA as beneficiaries made it a hard-stop no-go situation. The partner holding it in an SDIRA did explore ways to exit the deal with that entity and buy back in down the road with another, but the time, cost, and penalties made it prohibitive. Since it was a BRRRR deal that we planned to all pull cash back out from, leaving it unleveraged also wasn't an option long term. Nobody planned to leave their cash stuck in it, and we had built massive equity. We held it for a little over two years with tenants in place for about 15 months and then sold for a profit. Luckily great tenants who caused zero issues and barely needed to sweep & mop the place before sale. That 'other' land trust company absolutely blew it on the closing process causing us all to lose some hair during that period, but we did exit the deal with a great profit.

I'd still do a land trust again in the future, but I'd be sure the ownership structure was nice and clean without mixed entities and SDIRAs in the mix. A straight LLC will be far easier to get a loan or open a bank account, but doesn't provide the other benefits of a Land Trust.