Epic Real Estate Investing - Creative Strategies with Land Trusts | Randy Hughes | 1005

Episode Date: May 1, 2020

In today’s episode, Matt is joined with Randy Hughes, a full-time real estate investor since 1969, a land trust expert, and an educator. Randy and Matt discuss opportunities in the shifting market, specifically, what creative strategies using a land trust YOU can apply to level up your real estate investing during the crisis! Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terrio Media. Success in real estate has nothing to do with shiny objects. It has everything to do with mastering the basics. The three pillars of real estate investing. Attract, convert, exit. Matt Terrio has been helping real estate investors do just that for more than a decade now. If you want to make money in real estate, keep listening. If you want it faster, visit R-E-I-Aase.com.

Here's Matt. Hey there, Epic Investor. It's Matt Terrio from Epic Real Estate, where we show people how to invest in real estate with an emphasis on retiring early. You just got to do one thing, one time that's shifting your focus from creating mountains of cash to creating streams of cash. Do that one time. Back it up with action. And you can exit this rat race in about 10 times faster than how most people are going

about it. This is the Epic Real Estate Investing show. If this is your first time here, really glad that you're just. you found us, make yourself at home. And if you like what you hear, make sure you hit the subscribe button before you go. If this is not your first time here, welcome back. And thank you for sharing us with your friends and family. Just past our 10-year anniversary. Just had our 1,000 episode. You are the absolute best for doing what you do because we would not be here unless you did do that. So thank you. Very grateful. Okay, so please help me welcome to the show. Mr. Randy Hughes.

Randy, welcome to the Epic Real Estate Investing Show. Thank you, Matt. Appreciate it. It's an honor to be with you. excited about talking to you and your folks about the wonderful real estate business. Awesome. So we have been discussing creative acquisitions all month long, and I've used land trusts for my subject to deals. And I've got a lot of questions about that. But I know land trust also have a bunch of other uses as well. And I want to kind of dive into all of those that are applicable to a real estate investor. But first, can you just kind of give me a little bit a background on yourself? Yeah, I've been investing since

1969 when I bought my first single family house as a rental. So that makes this my 50th year. I can't believe I'm about choking on those words, five decades. Yeah, my 50th birthday was kind of difficult to swallow too. I get the choking. You understand.

Yeah. But, you know, the nice thing about it is having that much experience is So there's a lot to draw on, especially in times like today. But I originally wanted to buy, my idea in college was to buy apartment buildings because I studied real estate and majored in business in college. But I soon learned that you needed money to buy real estate. And I didn't have any.

My father was an alcoholic, and he left home when I was 60 years old and never came back. And so I didn't have anybody to give me a health. start. So I kind of got into the house business because it was the cheapest business to get into as it related to real estate investing. And I probably had, oh, probably 15 houses in my name personally before I woke up to the realization that that wasn't very smart that, you know, anybody could go look up the records and see what I paid for the houses, what they were assessed for, and what I owed

on them. And with those numbers, you pretty much could figure out what my net worth was. And I thought that was pretty stupid. Because, you know, as well as I do, Matt, the average citizen in America, if they know you own real estate, they think you're rich. You may be poorer than they are. You may have negative cash flow, be upside down on your LTV, but they think you're rich. And attorneys love to sue real estate investors because they have hard. assets that are hard to liquidate and they can attach them if they sue you. So when you own real estate in your name, you really put yourself out there as a part. And I learned early on, I didn't want to target because I had it worked very, very hard to get. And I knew what life without money

was like and researching ways to hold title. And these trusts have been around for over 100 years in the United States and thousands of years in England as a method of holding title. So that was kind of my genesis was just to not own anything in my name personally, so I wasn't a target. You know, attorneys will tell you, oh, land trust don't protect your assets. And on the surface, that's true. They're more designed for asset protection purposes. But because of the anonymity factor that they give you where people don't know what you own,

That in itself is an asset protection tool. And so we start with the land trust and move on from there. Got it. Okay. Yeah, it's interesting being in the business, I'm in of educating. I get trolled a lot online. And there's one guy that was about six months ago. It was really challenging me to, I didn't believe I do what I do.

And he says, just post, I dare you to post 10 of your properties that you own. and I wouldn't do it. And I was like, and he thought I was doing it because I didn't own them. And I was like, no, are you,

are you crazy? Like, I'm just going to, he's out here on the internet for you to see. No, I don't want you to know what I own. But anyway,

yes. Yeah, he was probably somebody that doesn't own any real estate, I would imagine. Yeah, I know. And then,

but, you know, you get in those battles online and it's like, they go nowhere. So you just try to disengage, but he would not let go. Anyway,

okay, so asset protection is good. Anonymity is good, especially as, you know, as your portfolio starts to increase in size, the more important that becomes. What are some other uses of land trust for a real estate investor? Why else would that be important to them? Well, actually, I spoke 33 times last year, Matt, to RIEIA clubs.

So I'm pretty active. I've been teaching this for 20 years, and I'm pretty active out teaching this information. and when I speak and when I talk on interviews like this, there's just not enough time to go through it all, all the benefits. So I wrote a booklet called 50 Reasons to Use a Trust. And if your audience wants to go to my website, they can download that booklet for free.

But we talk about a few of the concepts, but we certainly don't have time to go through 50 of them. But some of the big reasons are you avoid probate. For example, if you're a real estate investor and you own real estate in your name right now and you die tomorrow, your heirs aren't going to get control of that real estate for some time. First, your estate has to be settled. It has to go through the courts. Everything you own is laid out for the public to see and who owns it now, who gets transferred to if you don't use a trust. So most people don't really like that kind of exposure to the public of what their assets are. So when you use a trust and if you die, your interest immediately goes to the successor beneficiary.

So that could be your spouse or your children or whomever. And that successor beneficiary immediately gets control of the trust, which controls the property. And tomorrow morning they've got control. They can make decisions. And that is a really, really important benefit to give to your heirs. Yep. Super. So that asset protection, avoid probate.

Let's just dive into the creative acquisitions if we could. Okay. Let me ask you, though, when taking, I'm just going to play dumb and let you be the expert because you are. And I'm not going to pretend to be an attorney here, even though I try to play one every once in a while. With the land trust, does it, do you have to take title in the land trust when you buy or can you do it after the fact and what are the pros and cons or do you miss out on anything on either one of those strategies? Well, you can do it either way. The smart way is to take title directly from the seller to your trust. So you're never in the chain of title.

But if you are in title now, get out of title as quickly as you can. You can't do anything about the fact that there's a record that you own the property at one point. But when you transfer out of your name and into a trust, nobody knows who owns that trust. It could have been my trust that bought it from you instead of transferring to your own trust. So you do get that anonymity. The part of the answer to this question also, Matt, is it depends on how you're financing, if you're financing it. If you are getting a loan that's sold to the feds, you know, Fannie Mae, Freddie Mac, a conventional loan, they will not let you close directly into a trust.

That is, unless you're in Illinois, and Chase, for example, will let you close four deals in Illinois directly into a trust, but most people are not in Illinois. So what you have to do in that event is closing your name, and then when the dust settles, transfer out of your name into the trust. Now, yeah, you show up on the title for a week or so, but those are terrific loans. They're 30-year fixed rate, low-interest rate loans, and I say get all you can get, which is not many. Most banks will only let you have four of those. Some will let you have more, but the bottom line is if you're very active in this business,

you're going to have a heck of a lot more than four loans. And so at the point where you run out of conventional loan financing, you go to what I call a portfolio lender. That's a bank that will keep the loan in-house and not sell it to the feds. And those folks generally will let you close directly into the trust from the seller. And boy, that's a smart way of keeping your name out of the records totally. Got it. To put a property into a trust, if it were after a fact,

is that a legal process where you need an attorney or can you do it yourself? No, you can do that yourself. All you need to do is prepare a trust agreement and a deed. And that's what I teach real estate investors how to do. It's kind of an avocation. I earn my living in the house business. That's how I pay for the groceries. But as an allocation, I love teaching real estate investors how to do this because I know

how important it is to their long-term financial health. and so I teach them how to create a trust and they form the trust agreement and then they can prepare their own deed and once they record that deed that takes the title out of their name and puts it into their trust. Got it. Very simple, right? Right. Perfect. Okay, I'm not a lot of moving parts there. So I wanted just to get confirmation on that for everybody because that's actually. been a common question in our current environment. And so I wanted them to hear it from someone other than myself. So thank you for, I'm glad you said the same thing. Because that would have been a mess. Super.

All right, cool. So one of the strategies that we're exploring and introducing people to, because the good thing that I was kind of excited to have you on, because this is a timely conversation, but you've also been doing this for a long time. So you're familiar with markets other than just appreciating markets that we've had in the last nine, ten years. Oh, yes. Totally, right? So we know that these types of situations with a subject to and taking over a mortgage are going to be probably a little bit more frequent moving into a shifting market than anybody is experienced in the last few years.

And so the subject to strategy of using a land trust is a good strategy. And it's one way to do it. I'm kind of like trying to figure how to phrase this so you can demonstrate your expertise. So I don't look, I'm not stealing your thunder because I don't want to be the lawyer here. So kind of walk me through on how you would use that with a land trust, land trust with a subject to and why you would want to and what are the benefits of doing so. Okay. I think giving real life examples is always, to me, it's easier to learn.

I love them. Yep. So let me just give you an example of one of the many houses that I bought that way. Sure. I had a guy who occasionally sent out postcards to areas of town that I were buying. And it's amazing. People will keep those postcards on the refrigerator for years and all of a sudden called me up and say, you still buying houses?

So this guy called me up. I went over, sat down, and it was an interesting situation. He's sitting in front of his television, eating dinner at a TV tray. and I'm sitting at a chair next to him. He's hardly even paying any attention to me. And I find out that he's been divorced, recently divorced, he's living in the house by himself, and he just wants out. And I said, well, you know, your house needs some work here,

needs new carpet and paint, blah, blah, blah. I'm going to put some money into the house, so I'll give you, I don't know, it was $1,500 for moving expense, and here's what I want you to do. I want you to put the property into a trust first. Well, why do you want me to do that? I said to protect both of us. Because if I take title in my name and I go out and do something stupid and run over somebody's dog

and they sue me for a million dollars, that lien against me is going to attach to your property here. And you don't want that because you're going to leave your loan in place and I'm going to make your payments for you. And if you go out and do something stupid, it's going to affect the title. So to protect both of us, because I'm going to protect both of us, because I'm going to protect you're going to I don't really know you, Bob, and you really don't know me either. We've just been talking here for a few minutes. The smart thing to do to protect the title for both of us is to put it into a trust. That way, if a leaner judgment is rendered against either one of us, it will not affect the title.

And that's good for both of us. So let's put it into a trust, and then I will buy the beneficial interest in the trust from you for $1,500. dollars. And so he threw it through and thought that was a pretty good deal. And so we did that. And we changed the mailing address for his monthly coupons on his house payment to my post office box. And he went on down the road. And I still own that house today. And what I'm doing is I'm obviously benefiting from his homeowner, low interest rate, fixed rate loan that I can't get anymore. So a lot of things are going on there, but using that trust is critical to putting that deal

together. And then if I wanted to, I could do a contract assignment of that beneficial interest. If I wanted to sell it off to another investor, I could do that. But I don't typically do that. My philosophy for all these decades has been I don't like to sell anything unless I have to, You know, two daughters. And when they each got married, I had to sell a house to pay for their weddings, and that was depressing. And anything else that came along in life where I needed money, I'd sell off a house.

But basically, I think if you don't buy this stuff and hold to long term, you'll never build wealth. You just have a job like anybody else has a job. And if you get unhealthy, if that's a word. It is today. Yeah, it is today. If your health fails you, then you're out of a job and out of income. So flipping is great. I know a lot of people make big money in flipping, but they break their arm or leg or get some bad viruses.

They're out of money and a job. So the way to build wealth is long term is to buy and hold this stuff forever, pay it off, let your tenants pay it off, basically. And do it in a trust to protect that. equity as you're going along. So many people in this business, man, spend all this time and effort and money learning how to build an estate, but they don't learn how to protect it. They don't take a little bit of time and a little bit of money to protect their net worth, which is much larger than their own personal residence or their car they drive, but they all have car insurance and they all have homeowners insurance. Wouldn't you want to protect the biggest

asset you have, your net worth in these properties? I think so. It's critical to your long-term financial health. Amen to that. Yeah, I subscribe to the Warren Buffett philosophy where he says his favorite holding period is forever. So you are preaching to the pastor over here, especially in the world of the last decade of the Wild Wild West where everybody's wholesaling, assigning contracts and flipping properties, and, you know, they're going to come out of this thing now after 10 years of appreciation and not own anything, and it's sad. So, but everyone seems like they might have been given a second chance.

Who knows what this market is going to reveal to us and present to us? So when you did that, when you took over that property from that gentleman, that was just, you did that at the kitchen table and went down to the courthouse and recorded it yourself? Recorded the deed, yes. You don't record the trust agreement, but yes, we recorded the deed out of his name and into the trust. Right. Okay, perfect. Super. What do you see are some of the bigger mistakes people make when they're doing this? When they're using trust? Yeah.

You know, it's really kind of hard to make a mistake because trust, these kind of trusts that we're using, I mean, there are hundreds of types of trusts out there. So let me identify what we're talking about. They're grantor revocable trusts. which means you set it up. Generally, you're the beneficiary, the grantor and the beneficiary generally. And they're revocable, meaning you can change them. So let's say you do a really bad job of setting up your first trust, and then you learn six months from now you did a bad job. Well, you can always amend your trust and make it a good trust.

So they're very forgiving. But as far as I don't really see too many mistakes. Other than limit, and that's a good point. One mistake I see, and I just had a call on this yesterday from a lady in Florida, who's not a student of mine, but she found me on the Internet. She made herself the trustee and the beneficiary. And that's not only dumb, it's stupid. Because obviously one of the reasons you're doing this is for anonymity.

So if you make yourself the trustee, then you're on the deed and you've lost your anonymity. But more importantly, to my knowledge, Florida is the only state that allows, and they just amended their trust statute about three years ago on this, allows a person to be trustee and beneficiary of their own land trust, which to me that makes no sense, but all the other states don't allow it, because what happens is what they call under the law a merging of interest. You can't, a trust agreement is a contract,

and you can't have a contract with yourself. Right. And that's what you're doing. So it's just not good in a lot of ways. I have a whole chapter in my home study course on who can be and who should be your trustee. But the short version of that explanation is it should be somebody with a different last name than you and somebody who lives out of the county in which the property is located. And I explain all that in detail as to why that logic is there.

But it's pretty hard to make a mistake on these trusts and you can easily correct errors if you haven't. probably the biggest mistake in my opinion, Matt, is they don't use a trust. Like I said, I spoke to 33 clubs last year, and only probably 15 to 20 percent of the audience agrees with me and decides to start using these trusts. That means 80 percent are saying no in their minds for some reason. Invariably, every week I get a call or an email from somebody that sat in one of my audiences that says, I know Randy, I should have done it, but I didn't. And I'd say, okay, so why are you calling me?

Well, I just got word that I'm getting sued by one of my tenants. What do I do? And I always say, well, look, you know, today's Wednesday, Sunday's coming up. I'd suggest you go to church and do some praying because that's all you can do. You can't do asset protection retroactively. You know, once you've been notified or caught wind of the lawsuit, coming, everything you do from that point forward is suspect by the courts. So asset protection that you have to be proactive, old and cold matters when it comes to your paperwork. The older and

colder your trust is, the more valid it's going to be in front of a judge. He's not going to assume you're trying to defraud your creditors. And let me just say, Matt, I never try to defraud my creditors. In 50 years of doing business, I've never paid a mortgage payment late. I've never defraud faulted on a loan and I've never taken bankruptcy. So I'm all about paying your bills. But I can tell you this, that if you're coming after me with some frivolous lawsuit, something I'm not responsible for, you're going to get a battle because those are my assets and my family's assets.

I'm not going to work my lifetime for something that you come in and steal from. Right. That's why they call it asset protection. Right. Very good. So trustee, different last name, different county. Can it be an entity? It can be that some states restrict that met.

And if it's an entity, some states will require the entity to be licensed, insured, and bonded and have a minimum net worth. I don't like, even in the states that allow an entity, I really don't like using entities, especially don't use your own entity. In other words, your own LLC is a trustee of a land trust. because at some point you're going to need that trustee to sign something. They're either going to have to sign a D because you're selling the property out of the trust or a mortgage because you're putting financing on the property. And at that point, that person's signing for the entity is going to have to prove to somebody, a lawyer, a title company, opposing agent, somebody's going to have to prove that he's got the authority

to sign on behalf of that entity. and that requires you to expose your operating agreement proving you have the authority to sign. I'm not going to show anybody my operating agreement unless they sue me to see it. So with an individual, they're harder to find, and to sue a trust, you've got to serve the trustee to begin with. So individual trustees are much easier to deal with,

harder to find, and all they need is their signature notarized, and they're off and running. Got it. Good. So being on the circuit, we spoke to 33 groups out there. I'm always curious to the stuff that you see and the stuff that you hear.

What's some advice that you hear out there that makes you cringe? Well, I'm glad you brought that up. Probably in every audience of last year's speech. People love to answer this question, by the way, so I'd like to ask it. Yeah, that's a great question. Probably one person and everyone

those audiences stood up or raised her hand and said, hey, Randy, why do I need to do this? All I need is insurance, you know, and I'll buy a $5 million umbrella and I'm good to go. And my answer is always, look, I'm all about insurance, buy an all you go for, get your insurance, but read your policy because there are a whole lot of exclusions in those policies, and it seems like every time I need them, there's an exclusion. So fast forward to last, uh, It's to March last month when the world changed forever. The first phone call I made was to my state farm agent. I said, hey, buddy, my business has been interrupted here.

And I've been paying premiums for 40 years to State Farm for business interruption insurance. It's time for me to make a claim. And guess what he said? It's not covered. It's excluded. it's excluded in the policy. And I thought, well, I guess that's the reason why I tell everybody, don't rely on insurance. The old COVID clause, is that what it was?

Don't cover pandemics. The pandemic clause. It's always something. There's always some reason why they don't want to pay. They're great at collecting premiums, but they're not real good at paying out. So, you know, buy your insurance, but you just realize it's just one leg of the asset protection stool. You can't rely on it solely or you'll get burned. Got it. Great answer, Randy. I like that one. That was good. The pandemic clause.

I'm going to put that on my seller finance notes. Great. So I haven't been doing this. So you've gone to what, five, six, maybe seven downturns or at least seven market swings. As the market is shifting right now and no one really knows what it's going to be. So I'm not asking you to break out your crystal ball or anything like that, but it's certainly going to adjust because we're seeing it already. What do you see are the big opportunities that people should be looking at right now? Well, as you kind of alluded to at the beginning of this interview, we're probably going to see a lot more seller financing, people cooperative in that. Yeah, interest rates are really low, but I think the market has changed

overnight, and it's going to take a while to recover from it. I mean, I remember in the 70s when my houses were going up at over 1% a month, and that was wonderful. And then the 80s came along and everything flattened out, and we had stagflation. I kept buying houses, though, because I wanted to get as many houses under my belt before the next wave came of appreciation. then the 90s were kind of a recovery period where things went well. We started getting back into appreciation, and I was happy that I bought all the houses in the 80s that I did. And then 2001 hit, and 9-11.

And that took the market down for a while. It's interesting to me when I hear about all the pressure the airlines are under, they lost 95% of their business in one month. After 9-11, took three years to get them back to their pre-9-11 flight schedules. What is it going to take this time? Right. You know, this dip may be lower than the crash of 29, and that took 10 years to recover from the crash of 29. Then came 2008. The crash of 2008 took 10 years to recover. So, you know, it could take another 10 or longer years for us to recover from this one. And that presents buying opportunities where people can't sell because there are not enough buyers.

And that translates into seller financing. And the best way to do that is, as we talked about earlier, using a trust to protect anybody involved. So there are going to be some great opportunities. The question is, when do you start buying? And I've already been presented with opportunities in the last month from realtors calling me that their deals are falling apart. Private sellers, real estate investors that need money, they've called me. And so far I've just said no because we're only a month into this. I'm not sure where the bottoms at. I'm like a blind man trying to feel the basement floor.

But I think we'll see here pretty soon once we get out of all of us. get out from underneath this quarantine and see how quickly businesses start to recover, that's going to relate to how quickly our real estate market will cover. I think a good note from a landlord's standpoint, I'm basically a landlord, is that housing construction has pretty much come to a standstill. But life continues on. People who have babies and they get married and they get divorced and they have job transfers. and so the need for housing continues,

but new home construction is not going to fulfill that. So that means, in my mind, I'm thinking that we're going to see a higher demand for rental property going forward until the new construction home business comes back into favor. So I think there's some tremendous opportunities if we can just recognize them

and do what everybody on this call is doing, and that is gathering information from Matt and lots of other folks out there. Yep. And then try to take advantage of it. Now, let me throw this out. One of the techniques I teach my students is to buy options on real estate. And I'm talking, you can do at least with an option to buy, or you can do a pure option.

For example, I've bought people new roofs. I bought one guy new windows for his house. Any type of a need people have for money, you can supply that for. an option to buy their house and you want to negotiate the lowest price you can for the longest period you can. So if it's a $200,000 house today and you can get an option price of $175,000 in 10 years, that's probably a pretty good bet. What's wonderful about those is there's nothing involved. There's no tenants, no toilets, no liability, no insurance, no management, no collecting of rents.

It's just you're betting on the increase and value in that house over the next 10 years. And particularly in some areas of the United States, that's a darn good bet. So you might think about considering learning about options to buy real estate. Awesome. Actually, my YouTube video tomorrow is all about options because they'll come back in fashion. So that's good. That's a good segue. You haven't said a darn thing yet that has disagreed with anything I've said all months.

So I really appreciate you, Randy. Thanks for being here. If someone wanted to get in touch with you, I'm looking at your book right now. There really are 50 ways and 50 reasons to use a land trust. What's the best way for people to get a hold of this book and get in touch with you? Well, go right to my website. It's land trusts made simple.com. And that's land trust.

That's plural. The word trust has an S on it. So land trusts made simple.com. And on there, you can get my phone number. You can call me if you want to. My emails on there and the free booklet. And there's a lot of other free information on the site. I try to explain trust as best I can, given the parameters of the website.

So feel free to go on there. There's actually a place where you can post questions if you want to. You can look at my home study courses and see if that interests you. You can buy them as a download or hard copy version. And I have something I call the Landtrosy University, which I formed 10 years ago. So I'm a little bit ahead of the curve on this learning online thing. So if you want to, you can watch me on video, teach the material that you're learning. Stop and take a test and get a grade, go on to the next section.

and communicate with other students. It's really a cool thing. I've spent a lot of time and a lot of money developing, but it's up and running and going like crazy. That's awesome. Well, everybody, I suggest you go get this book because this is going to be an invaluable tool as we move into this shifting market.

It's been an absolute pleasure. Randy, let's do this again. All right, man. Anytime you call me, I'll be there. Okay, we'll do. All righty. So if you found this episode valuable, This is a pretty good chance.

You know someone else who would find it valuable as well. And when you think of them, when that name comes to mind, when that face comes to mind, share it with them and ask them to click the subscribe button when they get here. And I'll take great care of them. I promise. That's it for today. God loves you. So do I. Peace, health, blessings, and success to you.

I'm Matt Terry O. Living the Dream. Yeah, yeah, we got the cash flow. Yeah, yeah, we got the cash flow. Yeah, yeah, we got the cash flow. You didn't know home world. We got the gas flow. This podcast is a part of the C-suite radio network.

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