Trust and Wholesaling?

Question

Okay so I understand how it works with using a trust to wholesale, but my question is. Am I selling the property or am I selling the trust? There is a big difference in my opinion. Any one have a very clear cut case of wholesaling with a trust? I am going to ask my CPA about the tax issues of this but has any one had issues with it?

Bill Gulley · Answer

You'd be the beneficiary, the one who receives the benefit from the trust, the property is held by the trust a trustee administers the trust for the benefit of the beneficiary. If you were to set the property over to another for their benefit you'd have to put them in as the beneficiary, that is assigning the interest in the trust and beneficial interests in the property.

There are exemptions from the due on sale, one is setting the property in a trust which is for estate planning purposes but the borrower must also remain as the beneficiary.

The other exemptions are passing on your estate to heirs and transfers by marriage or divorce by a court order.

What to study.....go to Amazon, buy a text book for real estate agents to pass their exams, several there and all will be about as good for an investor to actually learn about real estate, not just flim flam stuff about how to move deals around. Basic RE law, deeds, transactions, tile examinations, encroachments, encumbrances, liens, assignments, RE financing, surveys, legal descriptions, conveyances.....but the really important stuff is in the beginning, what RE is, why it is valuable, what improves a property, why it is marketable, valuations and the different interests held in title that are basis for all investor strategies. You also need to understand agency relationships, why Realtors do certain things and can't do others.....that way, you won't look bad asking them to do something unethical or illegal.

It is from these basics that all transactions in real estate are accomplished, every guru tactic is anchored in these principles, some better than others. Without understanding these basics, no one really understands real estates.....which is why so many starting off with guru step by step programs are just totally lost.

These text books are dry, no hype, not meant to be telling you you'll get rich or telling people what they think they want to hear, just bear down and learn at your own pace. Most have test questions, do them, you'll learn. If anyone has a question, come here in the forums and mention me and I'll address the question or you can ask others you trust who aren't guruized. You can find books for less than $20.00! Knowing the material can save you thousands and help you work legally and with integrity....there are no secrets in RE!

Best of luck :)

Jeff G. · Answer

Account Closed you imply disparity where none exits.

The property is an asset owned by the legal entity. LLC's and trusts are used for all kinds of things. The property dose not change hands, the ownership of the entity changes hands--containing the asset within.

Example 1

You might be aware that under some conditions when you buy a house it comes with title restrictions: e.g., you're not permitted to transfer title for 90 days or whatever. A common strategy to bypass this restriction is to purchase in the name of a legal entity and do the rehab work quickly. Then, sell the legal entity itself to the end-buyer bypassing the deed restriction; because the deed proper never changes hands. The property is an asset of the entity, in this case likely an LLC.

Example 2

You find a smoking deal where the seller of a house: the seller just wants out from under the mortgage because the house is underwater. You agree to take over the small monthly payment of $400/mo  and to give the seller $20k cash. You believe that the property will rent for more than enough to cover the expenses, including the note and project $250 in cash-flow; your minimum deal standard. You know the property has a due-on sale clause contained in the mortgage paperwork which you need to side-step.

To accomplish this you have your closing attorney create a trust called [property address] trust and make the seller the executor. You pay $20k and have the seller transfer executor status of the trust to you. You are now in violation of the "due on sale" clause, but have concealed that fact through use of a trust. You now control the property, through the trust, and the seller has walked away and moved on. The property is an asset of the trust.

These are all hypothetical examples and not legal advice.

Are things a little clearer now?

Bill Gulley · Answer

@Joshus Light

Let's not get off on the wrong foot starting off wholesaling, I'm not going to hammer the strategy, but I will a bit on side stepping the due on sale or doing convoluted things thinking it's the right way to do something. The change of any beneficial interest in a trust can trigger the due on sale, entering a transaction process to mislead a lender can be mortgage fraud.

As to your question, you are selling bot the entity and the property it holds, you can have transfer taxes for the real estate, the beneficial ownership is transferred to the new owner of the trust or entity. You do avoid a real estate settlement, but that doesn't mean that interests in the property have not changed.

If wholesalers would back up and begin learning the principles of real estate, basic RE law, all of which can be learned in a couple weeks, they will have a much better grasp on what they are trying to accomplish in any real estate strategy. Taking out house legal advice or how to circumvent things by guru trained wholesalers can be dangerous, don't know how to say it any nicer, but there is tons of bad advice on the internet in open forums.

Instead of learning what you want to hear, learn the reality of RE first, then apply the ideas you may hear about in an ethical, legal and compliant manner. :)

Bill Gulley · Answer

There are different types of Trusts. You may be a trustee, depends on the type and how it is funded, you need to see your attorney.

Wish you had mention school before, could have saved me some typing, LOL, that's great.

Why not hold off on your setting up Trusts or entities until after school, then you'll know what you should do. :)

Trust and Wholesaling?

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