Analyze my first potential deal!

[Todd C.]

Hey all! I've been posting recently about a property that my mother/uncle recently inherited. Its a SFH in NJ (down the shore) in an > 55 community. The house was paid for in cash, so no outstanding mortgage, property taxes (2014) were $2,110 and HOA fees are $200/year. My uncle and my mom want to sell the house, however, after running some analysis (pasted below), it seems like this could offer a nicely positive monthly cash flow. In order to get them their equity, I am going to propose renting out the unit, followed by moving it into a LLC (with me as an 80% owner and both my mom/uncle to own a cumulative 20%) and getting them 80% of the equity back. This seems like a win/win from my perspective as it accomplishes everybody's goals! I spoke to a realty company today who has recently rented similar properties out for $1,500/month. If you have any questions/comments about assumptions, please let me know. Thank you all!

Also, is this type of transaction actually possible to do?

[Gerald Demers]

Hey @Bony Mathew.  FIRST OF ALL, I AM NOT AN ATTORNEY, ACCOUNTANT, BAKER OR CANDLESTICK MAKER.  

If you own a property in your name purchased with conventional financing and you change the deed so it is now owned by your LLC, your conventional lender is going to freak out. if you do things legally, public record will show you making the move and attaching a realistic sale value to it. that shows there was a sale without the lender being notified and they don't like that.

So, you first move it into a Land Trust, a move protected by the Garn–St Germain Depository Institutions Act of 1982. Its not a sale. Such changes you will see a sale value of $10. You will see such non sale title changes when people move their properties to a Family Living Trust or there is a divorce or death. THIS IS A PUBLIC MOVE AND IT'S CLEAR IT IS NOT AN ACTUAL SALE. You choose a Trustee that your LLC is going to trust and use later when you move it to your LLC. This way, you don't have to record another deed changing the trustee (another non sale event).

Then your LLC buys the property subject to, not by purchasing the property, but by purchasing the Beneficial interest. Purchasing BI is a private sale. You pay doc stamps directly to the state because in the end, you are still buying real property and docs stamps are due on the sale of real property. But you pay the doc stamps to the state, not the county where all the public recording takes place.

So, to purchase a property subject to conventional financing, the OWNER moves the property into a land trust and then the NEW BUYER purchases beneficial interest and pays doc stamps to the state so all is private and legal.    

If my LLC is purchasing a property directly using cash from my private lenders I partner with, I purchase it directly into a land trust, owned by my LLC.  This way, if you search public records for MapleStar Property Management LLC, you won't find our properties we own.  Think about it, if there is a potential lawsuit pointed at you, legitimate or illegitimate, the first thing an attorney is going to do is an asset search.  For us, go ahead and search for you will not find.  That's the first part.  We also have reserves and liability insurance for when we do mess up and we have to fix things.  We take responsibility for what we do and we do all we can to be insulated from other people's stupidity and lack of desire for personal responsibility.  

When I write up an offer, MapleStar Property Management LLC or MapleStar Real Estate Investments, LLC is the buyer. In the notes section of the contract, I add the following wording:

Title will be taken in the following name(s) and style:

The ABE Corp. as trustee for the SomeWhere Street Land Trust.

On the settlement statement (private docs), the buyer is MapleStar, but on the public docs, the owner is ABE Corp as Trustee for the Somewhere Street Land Trust.  

Talk to an attorney that knows land trusts in your state.  The attorney will ask you a bunch of questions and create the PRIVATE land trust docs and the PUBLIC deed based upon that.  Once he does that, you can reuse the documents, changing out the Trustee, name of the trust and the property info the trust owns.  

Hope this helps.  I have to stop writing novels!    :O)

Gerald Demers

Brooks Young Financial Group

MapleStar Real Estate Investments, LLC

MapleStar Property Management LLC