Good Information from Steve Gibbs of Gibbs Law Firm:
Hello Friends & Colleagues!
This week’s topic is a key asset protection question for real estate investors who hold multiple properties. This question concerns how to hold real estate investment property, and this depends upon the goals and preferences of the investor.
The 2 most common “recommended” ways to hold real property investments are an LLC or Land Trust.
Exploring the pros and cons of these estate planning options is the stuff of this week’s article.
For Florida Investors Doing Estate Planning, Florida LLCs and Florida Land Trusts Are Both Effective Ways To Hold Real Property Depending Upon One’s Goals.
An Easy Way To Think About The Benefits and Detriments of LLCs Verses Land Trusts Is That LLCs Are Arguably Simpler To Establish and To Administer Whereas Land Trusts Offer a Some Added Asset Protection Benefits.
LLCs are extremely simple to set up in virtually every State and everyone in the real property world, from brokers to County workers, essentially knows about them. This means that people are not typically confused by your asset protection structure (of holding assets in an LLC) and this means that your daily life may be less complicated. LLCs are extremely flexible, and if prepared properly, offer key asset protection benefits. Of course, by prepared properly, I mean that setting one up yourself without an Operating Agreement may not be an effective strategy, whereas, getting professional help and creating a solid LLC structure goes a long way.
If you set up an LLC for estate planning purposes to hold your real property investments, you’ll need to decide whether you’ll be the only owner of the membership units (a single member LLC) or whether you’ll have other partner members (multi-member LLC). In many jurisdictions, such as Florida, multi-member LLCs offer a more solid asset protection plan than the single member LLC.
My recommended process to create an LLC is to file Article of Organization with your State of choice and then have supporting documents created to support your LLC. The State will require a renewal fee every year and you’ll need to decide who your Registered Agent will be…whether you or a third party. For more information about what should be considered in creating a solid LLC, visit our previous post. After this, the real property may be transferred to the LLC and you’re good to go, noting that the LLC needs to be administered with certain formalities.
The Land Trust option is different because it typically is not filed with the State and thus offers greater privacy and anonymity. A Land Trust is essentially holding real property by contract. So, the Trust document (contract) is created and the Trustee (who must be a third person or entity) is appointed by the Trust. The Trustee will essentially hold the real property for you or your entity of choice as the Beneficiary. So, privacy is an added benefit for Land Trusts. Key disadvantages in my experience are that City and County officials tend to more easily become confused by Land Trusts. You also need to be comfortable essentially conveying your title to a third party as the Trustee if you go this route, noting that the Trustee will be bound by fiduciary duties and the terms of the Trust. Land Trustees often charge annual fees as well.
Real Estate Investors In States Other Than Florida, Texas, Arizona, Ohio, Illinois, Indiana, North Dakota, Virginia and possibly California, may not have the estate planning option of a Land Trust.
The states referenced above are the only ones that have land trust statutes and generally the real property must be situated in the State that the Land Trust is created. This is a key distinction with LLCs because a Florida LLC can hold real property located in Texas, and this is usually the case with LLCs in various States.
Moreover, the Trustee ideally should also be located in that same jurisdiction as the Trust and the real property, so the rules are more restrictive than LLCs, because the LLC Managers can be anywhere although the Registered Agent must be locally based in the State. Also, with Land Trusts, if you have multiple real properties in the same State, they must be “contiguous” (next to each other) in order to title them in the same Land Trust, and this is not the case with LLCs.
Of course, all of the above is a basic distinction and a great asset protection plan may utilize both Land Trusts and LLCs. All of the above should also tie into your overall estate plan and this may require directing the real property in your LLC or Land Trust to your Revocable Living Trust upon death.
As always, I hope this clears up a bit of confusion and…
Until next time.
Contact Gibbs Law Office Today.
For estate and business attorney service in Fort Myers Florida, call us at 239-415-7495 or contact us online to schedule an appointment.
Gibbs Law Office, PLLC 8695 College Parkway #2330 Fort Myers, Florida33919
Crystal Snyder has only been buying and selling Real Estate for less than two years. Prior to becoming an agent she received a certificate in Cosmetology, an Associates degree in Science and two degrees, one in Economics and the other in International Business. She was working towards her Master’s Degree when she decided on a career in Real Estate. When I met Crystal, she was a mother of 4 children but recently adopted a 5th child.
When she started in Real Estate, I suggested she find a niche rather than try to do everything. Crystal took to working auctions and flipping contracts as if she had always been doing this. She had immediate success, so much so that she discovered the “Secrets” of one of the major online Real Estate Auction sites.
She has privately mentored several new Investors. One earned his first equity on a property after only 2 1/2 months after starting. His share of the property was over $16,000. Did I forget to mention he was only 18 years old with no Real Estate experience?
I will write about some of her most current closings in another blog. Crystal’s company will be working directly with mine, Real Estate Services of SWFL to bring these properties to our Buyers’ lists. She will also be teaching people how to duplicate her system.
Welcome back to Florida, Crystal. Let’s help these new Investors get in one the Action!
Several days ago, I did my mid-year update on SW Florida Real Estate. One of the items I mentioned is that investors are not as plentiful because market prices were climbing. Flipping is not as popular and now is the time to adopt a “hold” investment strategy.
An article in Sunday’s Fort Myers News-Press, re-emphasized this idea with interviews of developers that are building apartments again and renters looking for housing. (read “apartment complexes“). One of the renters had recently sold his house to rent again. All the renters in the article had the same comment, basically, nice apartments at a good price were hard to find.
My office does leasing. Houses and condos have waiting lists in the Fort Myers and Cape Coral, Florida markets. In the few weeks, we have posted 7 rentals on our site. All received dozens of calls and emails for information. The market savvy renters ran by our office with completed applications and application fees. All of the properties were leased the same day as the ad posted.
I have 2 houses I am rehabbing that would make great rentals. I have “For Sale” signs on both but almost daily, I get calls asking if the owner would rent. (Check them out here)
With this demand, I will be posting several more blogs about buying rental properties, selling rental properties at a profit and how to use crowdfunding to take down larger cash flow properties. Subscribe to this blog so you do not miss anything!
Broker/Owner, Investment Property Consultant
Real Estate Services of SWFL, LLC
Low-Income Housing Goals Set for Fannie Mae and Freddie Mac By DIONNE SEARCEY AUG. 19, 2015
The federal agency that regulates the mortgage finance companies Fannie Mae and Freddie Mac on Wednesday set goals for the next two years to nudge them to provide mortgages to more low-income borrowers and to landlords who offer low rents to poor people.
The Federal Housing Finance Agency is required by a 2008 law that took effect after the collapse of the housing market to set annual targets for mortgages bought by Fannie and Freddie, the government-run institutions that back most home loans.
The goals act as directives for Fannie and Freddie to focus more of their business on affordable housing. The companies buy loans from private lenders, package them into mortgage-backed securities and provide a credit guarantee to investors to ensure timely payment.
Some advocates of housing for the poor expressed disappointment that the goals were not more ambitious. But the agency hailed the rules as an important lever for helping more poor families buy homes and for improving access to mortgages for landlords who rent out affordable apartments to low-income tenants in poverty-stricken neighborhoods.
“These goals establish a solid foundation for affordable and sustainable homeownership and rental opportunities in this
country,” Melvin L. Watt, the agency’s director, said in a news release.
The housing market is improving, but still lags the boom years before the market collapsed. Many potential buyers still complain that they have trouble getting mortgages, that few homes are on the market and that rents are soaring.
The agency set separate targets for single-family housing including categories for mortgages for low-income families, very low-income families and families in low-income areas, and for refinancing mortgages. The goals for mortgages for owners of multifamily property also include separate targets for low- and very low-income families.
The agency said 24 percent of mortgages should be bought by Freddie or Fannie for homes for low-income borrowers, or those with incomes no greater than 80 percent of an area’s median income. That goal is one percentage point higher than the goal for 2014.
The National Community Reinvestment Coalition, which advocates affordable housing, said that the new target fell short of expectations.
“With demand up and the economy stronger, to say 24 percent is to create a standard that isn’t as helpful as what is needed,” said John Taylor, president of the organization, who called the new goals “a lost opportunity.”
The agency also set a goal of 6 percent of mortgages for borrowers considered very low income, who have incomes no greater than 50 percent of the median income of the area. That is slightly less ambitious than last year’s goal of 7 percent.
For multifamily units, the agency wants the lenders to back mortgages for 300,000 units a year through 2017 for low-income units and 60,000 a year for very low-income units.
For mortgages for small apartment complexes, the goals are 48,000 total low-income units for the next two years, less than half of the 105,000 total units originally proposed. The higher goals would have risked “crowding out” smaller lenders, the agency said, acknowledging that the final goals are modest but are intended to keep Fannie and Freddie active in this market.
The agency said that Fannie and Freddie had not fallen short of similar housing goals in the past, but that it could take action to ensure the goals are met if problems arise.
During the housing crisis, the federal government placed Fannie and Freddie in conservatorship, and they received a taxpayer bailout to avoid bankruptcies. They now pay their profits to the Treasury.
The agency said it had received 144 comment letters from advocacy groups and others on its proposed goals. A “significant number” of those letters questioned whether Fannie and Freddie should still be under conservatorship or were tied to unrelated matters.
“Those comments are beyond the scope of this rule-making,” the agency said.
A version of this article appears in print on August 20, 2015, on page B7 of the New York edition with the headline: Agency Sets Goals for Fannie Mae and Freddie Mac to Encourage Affordable Housing .
About half way throught the year I like to update the trends I see happening in the Fort Myers/Cape Coral, Florida and the surrounding areas.
House prices continue to rise in many markets. In Lee County, the average prices are up 16.8% as in the same time frame last year. Prices locally have dropped 3.6 % in the last 30 days. Historically there is a small price drop just before back to school. Prices will start climbing again in October as seasonal visitors start their trek for the Holidays.
With prices rising, new construction is back on the rise and more home owners are putting their house on the market. Investors have backed off their activity and we are now in a “Sellers’ Market”. Home Buyers, especially retirees or Baby Boomers, are looking for move-in ready houses rather than inheriting the problems that may come with a re-sale.
Interest rates have climbed a small amount but still remains very favorable for home buyers. This may change in the near future which makes the urgency to buy now very important. Also, Mortgage companies and Banks have loosened the very rigid standards that were in place after the market fell in 2005 to 2006.
Foreclosure numbers have dropped extensively. They no longer a significant number in the available housing inventory. Again, in a Sellers’ Market, REO’s (Bank Owned) are priced to be competitive, no longer the bargain they were from 2008 to 2010.
In summary, if you purchased your house over 15 years ago or bought an REO at a bargain price, NOW is the time to put your house out there. Prices will continue to rise slowly but not as high as they were in the early 2000’s. Don’t join another round of “Coulda, Shoulda, Woulda” Home Owners.