What’s in a Title?…Everything!

One of the considerations you should be thinking about during a commercial real estate acquisition, whether a Class-A office building or a strip mall — is how you will hold title.

This is a decision you should not take lightly as there are many eventualities that occur due to this election. Of course (and it almost goes without saying), you should consult your attorney and accountant, and anyone else you feel is relevant, at minimum before making this decision. It should also be advised that this post is not intended to replace professional advice and is only meant to be food for thought as you consider acquiring commercial real estate.

There are at least four chief concerns when thinking through title alternatives: ease of trade/transfer, liability, taxes and estate planning. Ease of trade I would define as the level of challenge you will encounter either on the acquisition side or the disposition side of your commercial real estate transaction. This may not be the most important driver on the hunt to find the perfect title structure, but including this component as you look to acquire may save you headaches and heartburn later.

Liability is one issue that normally is top of mind as you begin to think about all of the stakeholders in your asset and the infinite situations that may lead some to consider litigation against you and your assets. Liability is quite simply how open your personal assets and the property’s equity are to being lost in a lawsuit. It is worth thinking about the breadth of potential lawsuits that may impact this holding as well. We tend to restrict our thinking to what lawsuits may arise in a tenant/landlord scenario only, or matters only directly related to the piece of commercial real estate, when in fact, that may not be the case at all. We could just as easily be talking about a completely unrelated matter that when litigated may affect your asset — in a very negative way.

One reason you may have been attracted to commercial real estate in the first place is the positive impact owning a piece of commercial real estate would likely have on your tax situation. Depending upon how you decide to treat the asset, you could inadvertently make your tax bill bigger, not smaller. Even worse still, like death by a thousand cuts, your tax structure may not be giving you all of the tax advantages that are available to an owner of commercial real estate. You could be paying many hundreds or thousands of dollars more than you rightfully owe.

The fourth problem, estate planning, is somewhat related to both taxes and ease of transfer. You’ve opted to invest in commercial real estate, maybe not just for personal gain, but perhaps for the benefit of future generations. If you aren’t careful in the construction of your title (and/or entity selection), additional tax burdens and concerns over who owns what may ensue. It wouldn’t take more than a few minutes of searching on the internet to find cases where people had spent their lives building a tremendous portfolio of assets just to have that portfolio dismantled after the death of the principal, effectively negating that lifelong effort.

I am sure I haven’t discussed all of the salient points of holding title to your commercial real estate project, but I do hope that I’ve discussed just enough that you will feel compelled to make appointments with the professionals on your team to hammer out your details before you sign on the dotted line. There is no ‘one size fits all’ in terms of how purchases should be structured and operated — and there are a great many variables that must be included as ingredients to your title structure. This process requires thought, research and consultation. On the face of it, rushing, skimping or shortcutting may appear to some, to be a smart and frugal way to approach this process. Results from taking this approach could run from less than optimal to utterly disastrous. You want your commercial real estate investment to fire on all cylinders and work with you to achieve your financial goals. Doing your homework and holding title in the right way is just one piece of that puzzle.

Save Big (or not) With 1031 Exchanges

You’ve found a great asset.  You’ve done your due diligence.  It’s in the best market and sub market.  It has strong financials that are poised to give you just the kind of returns that will set you along the path to financial freedom.  You decide to go for it!

Fast forward 10 years.  Fantastic news!  That great asset you found way back when has done wonders for you over the last 10 years.  Not only has the property appreciated exactly the way you had predicted, but it has been spitting cash at you since you closed.  Now you have a grand new plan.  You have decided to aim at a bigger and better piece of commercial real estate.  The question becomes:  what is the best way to handle the sale of your current property and the purchase of your bigger and better property?

You vaguely remember someone telling you about something called a 1031 exchange.  You might even recall something about a reverse 1031 exchange.  Are any of these methods right for you?  In order to answer that question, we first have to define a 1031 exchange and then think about what the processes involved in a property exchange look like.

A 1031 Exchange Definition

A 1031 exchange (also called a ‘like-kind exchange’) is a tax treatment that allows a property owner to postpone taxes owed on any gains made through the sale of his or her property.  If so elected, the owner selling their property selects a like-kind property to purchase within a specified period of time and re-invests any proceeds from the sale of their first property.  This re-investment of proceeds is not taxed at the time of the transaction as would occur normally, but is instead deferred until that time that the owner purchases another property without the use of a 1031 exchange, or until that time that the holder chooses not to re-invest their gains.  A 1031 Exchange can be used serially and in perpetuity, effectively eliminating the tax burden on gains realized from certain real estate investments.

A Reverse 1031 Exchange Definition

Now that you have a firm understanding of the straight-forward 1031 exchange, let’s examine a ‘reverse’ 1031 exchange.  In the straight 1031 exchange scenario, the steps are fairly straight forward:  you sell your property, select a replacement ‘like-kind’ property (within that specified period of time) and purchase the replacement property.  Under a ‘reverse’ 1031 exchange set up, you effectively do the opposite:  you acquire the replacement ‘like-kind’ property first, and then sell your existing property.  The proceeds from the sale in either case are invested into the like-kind, replacement property according to the rules and limits put in place by the IRS.

Here is an excellent infographic of the 1031 exchange process that explains visually what is sometimes difficult to understand with the written word:

http://dailyinfographic.com/1031-exchanges-the-ultimate-guide-infographic

Purpose

My guess is that by now you have a pretty good idea as to why it is sometimes a great idea to enter a 1031 exchange and why the hassle might just be worth it:  deferral of the typical long-term capital gains rate of 20% on your investment gains until you decide otherwise.

Let’s look at the example we used above.  We purchased our piece of commercial real estate for $1M.  Ten years later, we decided to sell our property for a cool $2M.  Excusing all of the associated costs of the transactions, and any alterations to our cost-basis, we have doubled our money!

If we were to sell outright without the expectation of exchanging into our bigger and better property, we would net (approximately) $800k:

Sales Price:  $2M

Purchase Price:  $1M

Difference:  $1M

 

Taxes (@ 20% of $1M):  $200k

Net to You:  $800k

 

If we opted instead to do a 1031 exchange, this example would look like this:

Sales Price:  $2M

Purchase Price:  $1M

Difference:  $1M

 

Taxes (@ 0% of $1M):  $0

Net to You:  $1M

 

It Might Not Make Sense

A 1031 exchange or reverse 1031 exchange may not make sense for you if you have $50k or less in capital gains.  In this case, the processes involved may be too cumbersome, the interface with intermediaries too costly and the tax consequences not damaging enough to justify involvement.

If it does make sense, a 1031 exchange might just be the ticket to advancing your financial goals.  As with all processes, procedures and rules  surrounding your taxes, consultation with the IRS, tax attorneys and/or a 1031 intermediary is imperative to getting the most out of your tax planning and your commercial real estate transactions.

 

The Undeniable Multifamily Trend

Have you ever heard that saying, “the trend is your friend”? If you have, you already have a leg up when it comes to investing in the multifamily space. We’re going to take some time in this blog to explore the demographic trends in apartment dwellers. After all, these dwellers will make or break your investment and it is therefore incumbent upon us to know what we’re getting ourselves into!

Fortunately, you have picked an outstanding asset class in terms of immediate, medium to long-term upward trends. You could even go so far as to say that multifamily is here to stay. The Baby Boomers, Gen Xers (yours truly), the Echo Boomers, immigrants and single head of household groups are all part of the wave of customers that will fill multifamily apartments for years and years to come.

There are several long-term trends working to bolster the multifamily market and they revolve around what each generation is going through as they grow up, get jobs, mature and retire. Let’s start with the Baby Boomers. Sometimes discounted as a driving force, this group is returning to the apartment market in force after buying houses and raising families in their younger years and there are about 77 million of them. Between 2009 and 2025, it is estimated that this group will grow an astounding 76% (see credits below).

As if this weren’t a strong trend in and of itself, the Echo Boomers (or Millennials, or Generation Y) are coming. Actually, they’re here and more are coming. Grandsons and granddaughters of Baby Boomers, this group is even larger than their forefathers. Born in the period between 1980 and the early 2000s, this 80 million population generation plays a significant role how multifamily projects are used, designed and built in today’s market. As the age of the rental population declines, we’re witnessing first-hand the Echo Boomers entering the multifamily market in a dominant way.

Several additional factors surrounding Echo Boomers spell good news for those considering multifamily investment. First, the rent-buy math still favors apartments. When that math will turn corner we don’t know, but until then, apartment dwelling makes fiscal sense. Next, the Echo Boomers have been tackled by a weak job market (necessitating the need for mobility), slow economic growth and high student debt, each factor conspiring favor renting in the near and mid-term. Finally, this generation (and likely future generations) are less interested, generally speaking, with leaving a large footprint. More Eco-conscious than their predecessors, living close to city center in a smaller dwelling, with amenities suitable for the tech savvy is what this group is all about.

Look out beyond city center and out into the burbs, another trend in multifamily demographics is emerging: the immigrant population. Immigrants and their families, searching for large, three-bedroom apartments in safe neighborhoods and good schools is driving the suburban multifamily market in much the same fashion that Echo Boomers are driving the urban multifamily market. This bodes well for the apartment investor whether they are interested in a garden-style complex or a high-rise apartment building.

Each of these groups is adding fuel to a strong multifamily market. Some say the strongest market since the Depression. And although in recent months, some investors have shied away from apartment investing owing to a perceived oversupply of multifamily units, demand has kept pace. This is not a surprise either. Given the confluence of particularly the Baby Boomers, the immigrant population and the Echo Boomers, the upward trend we are witnessing in the multifamily segment is supported in the short, medium and long-term. This is good news for multifamily investors.
Credit for certain facts outlined in this blog are due to the following articles:

http://www.multihousingnews.com/news/national/the-effects-of-demographics-on-the-apartment-industry/1004029460.html

http://www.cnbc.com/id/101773495

Cash on Cash Return vs. Internal Rate of Return

At a Meetup the other night with other like-minded real estate investors, we got to talking returns on investment. Sometimes, we get to talking in jargon and sometimes we forget that everyone doesn’t have all of the definitions down pat, or they may have forgotten them entirely. I was going to re-create an article addressing the question of cash-on-cash returns vs. internal rate of return (IRR), but why do that when James Miller did such an outstanding job making this complicated topic easy to understand? Enjoy!

Real Estate Go Zone

Cash on Cash Return vs. Internal Rate of Return
by James Miller

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Cash on Cash
Cash in Cash return, or Return on Investment (ROI)  is the easiest Rate of return to calculate. It is also the one I use the most often as it tells me what the money is generating with regard to actual cash I can put in my pocket today.

To calculate it you take the amount you are getting from an investment, typically on an annual basis,  and divide it by the amount you have invested. Multiply this number By 100 and you have a percentage representing Cash on Cash Return.

For example if I have $10,000 in a property that is netting $100 per month, I am getting $1200 per year on my $10,000.

I divide the $1200 by $10,000 to get .12   I multiply this number by 100 to get my percentage of…

View original post 325 more words

CRE Value and the CAP Rate Impact

You remember our friend CAP rate? CAP rate is defined as the unlevered return you can expect to receive on a commercial real estate asset investment. CAP rates vary by asset type, asset class and location. CAP rates also vary over time according to supply and demand.

For instance: CAP rates will likely not be the same for an office building situated in a major metropolitan downtown area and a suburban apartment complex. A suburban apartment complex in one part of the country will not have the same CAP rate as an identical suburban apartment complex in another part of the country. The same office building and suburban apartment complexes may have a different CAP rate next quarter or next year or ten years from now. The point is that CAP rates change.

Let’s look at how CAP rates impact the value of our commercial real estate first. You may know that the value of a piece of commercial real estate is typically calculated like this:

Net Operating Income / CAP Rate = Value of the asset

Let’s take an easy example. Suppose your multifamily property has a NOI of $100,000. The going CAP rate for your class of property in your market right now is 10%. This 10% CAP rate says you will earn a 10% return on your invested dollars if you purchased this asset using all of your own cash.

Calculating the value of the asset using the formula above looks like this:

$100,000 / 10% = $1,000,000

So, if you purchased your multifamily building for $1,000,000 using all of your own cash, you would receive $100,000 per year or 10% return on your investment.

Using the formula above, let’s look at the impact of a changing CAP rate on the value of your apartment building.

At a 5 CAP (a CAP rate of 5%), your property would be worth:

$100,000 / 5% = $2,000,000

At an 8 CAP (a CAP rate of 8%), your property would be worth:

$100,000 / 8% = $1,250,000

You get the idea. And you can see that a varying CAP rate can impact your acquisition costs as well as the value of your investment over the life of your hold period. Finally, CAP rate can affect the timing of any financing events during the hold and the price you are able to demand on disposition. Whether it’s an industrial building, a strip mall or an office park, it pays to pay attention to CAP rate.

The Missing Pieces

I was on the phone the other day speaking with a tax strategist. Not a CPA (well, he is a CPA, but not for the purposes of this call), not a bookkeeper, not a tax preparer, but a tax strategist. Just one more professional that I have found a need for moving forward. Why? Well, that’s for another discussion. I want to focus on what this tax strategist said to me that struck a chord. It might strike a chord with you too.

Opening our discussion, we initially spoke about being a full-time W-2 worker and what kinds of tax limitations that presents. That’s when the pearl of wisdom erupted from this tax strategist as he drew a very simple analogy.

“Remember when we were kids and we played with those gigantic 4 or 5-piece puzzles?”, he asked. I answered in the affirmative when he said that tax strategy is just like those gigantic puzzles. In order to complete the puzzle, we need all of the puzzle pieces. The puzzle will just not fit if we don’t have all of the pieces. That seemed logical and easy understand. Then, like a ton of bricks, he said that in order to make ANY tax strategy work, you must have all of the puzzle pieces. The important thing here is that as a W-2 worker, you don’t have all of the tax strategy puzzle pieces!

As a W-2 employee, even with a mortgage on your primary residence, you don’t have all of the pieces. He went on to say that the two important pieces that are missing in this scenario are a business and/or a real estate investment. Without those two critical pieces of our tax strategy puzzle, we will not have a satisfactory tax strategy. For it is the business owner and the real estate investor that have the ability to write off even the most mundane expenses. It is the real estate investor that has the ability to take depreciation. As a W-2 employee, you can’t do those things very well.

Each of these incentives even make sense from a government policy standpoint, right? The government wants you to start a business. The government is happy when you invest in real estate, so they “help” you do that with tax policy and incentives. So if you want to minimize your tax burden and formulate a better tax strategy moving forward, remember that starting a business and investing in real estate (and especially commercial real estate) are your missing pieces.

 

 

 

 

NOI: The King of CRE Valuation

Now that you have made the decision that commercial real estate is the ticket to a well diversified portfolio, you begin the search for the perfect asset. There are many different assets to choose from in commercial real estate: office buildings, industrial warehouses, strip malls, apartment buildings and even the post office building!

Just as you get your feet wet looking at the vast array of possibilities, you may discover that deciding how much you are willing to offer on each of these assets is becoming a little bit of a challenge. Some of the properties your broker has sent you don’t even have an asking price! The listing broker only says something like: offered at market rate. So now, you not only have to find just the right property for your investment appetite, you also have to determine how much it’s worth.

You aren’t a real estate appraiser you say? That’s okay; we’re going to explore how the majority of commercial real estate brokers, investors, bankers, and maybe even appraisers come up with their estimated value of a commercial real estate asset.

First, let’s remove all traces of residential real estate valuation from that head of yours. Using what you know about residential real estate to help you value commercial real estate is going to really get you off on the wrong foot.

You may recall from previous blog posts that commercial real estate does not have a central ‘For Sale’ repository like residential real estate does. There is no MLS for the commercial side of the house. Next, and perhaps most importantly, in commercial real estate, we do not use comps. You know; comps. Comps are the way we all determine how much our personal residence is worth when we are looking to purchase or refinance. We compare houses with the same number of bedrooms, bathrooms, and square feet to our current or prospective home. We then look at these ‘comparable’ houses within a tight radius, closest to our current date.

Yeah, comps are not really used in a serious way for commercial real estate. At best, you could use this kind of information as a tool to see generally how far away from, or how close, your property’s asking price is from properties that have closed escrow. Be warned, however, that you may or may not find recent sales or sales of very similar property types, and therein lies the limitation in using this method for anything other than as a reasonableness test.

Another method of valuing commercial real estate is replacement cost. This method is not used much anymore, and is not talked about too much. The one place you will see a reference to a replacement cost is in a sales listing where the broker might say something like ‘priced well bellow replacement cost’. Replacement cost is just like it sounds, it’s the cost of re-constructing the commercial real estate asset from the ground up(though not including ‘the ground’). There are a couple of ways to go about this type of calculation, but a typical calculation is based on an average dollar value per square foot. As with comps, the replacement cost calculation can be used for reasonableness testing.

The gold standard, if you will, for valuing commercial real estate, however, is Net Operating Income, or NOI. NOI, used in combination with CAP rate, gives you the potential acquirer, the estimated value of an asset and a great starting point for presenting an offer or negotiating a position.

Net operating income is defined simply by the gross operating income of the property, i.e. all rental income plus other income the property generates, minus all of the asset’s operating expenses. Please note that this calculation does NOT include mortgage payments of any type. Once this value is determined, and a CAP rate is known, it is a straight forward calculation to determine an offering price.

What is CAP rate you ask? This is an important question when working the formula we’ll discuss in a moment. The CAP rate, or the capitalization rate is the unleveled return you would expect to find your market or submarket for your particular asset type. For instance; in Dallas, TX, we might expect to find CAP rates in the 6% rage as of this writing for a B-class multi-family asset. The same B-class multi-family asset in San Francisco, CA may currently be fetching 3.5%.

The lower the CAP rate in a particular market, say in San Francisco, CA, the more secure and stable the asset. The higher the CAP rate, the greater the intrinsic risk. Generally speaking, there are CAP rate ranges for each class of assets within each market. Your commercial real estate broker should have the most current CAP rates available for your asset type and class.

The calculation: Once we have a handle on the NOI and know the going CAP rate, the value calculation is fairly straight forward. We divide NOI by our CAP rate, which looks like this:

NOI / CAP Rate = Asset Value

Here is an example. Our NOI is $500,000 and the going CAP rate is 6% or .06. We plug and play:

$500,000 / .06 = $8,333,333

This calculation is easily swapped around to find any of the three variables if we have the other two. This makes this calculation handy for learning more about our market and its expected returns and/or understanding the financial performance of a commercial asset.

As with any calculation; there are some pitfalls, particularly in the NOI derivation. We will explore those limitations in a future blog post. Beyond those pitfalls, NOI/CAP rate valuation calculation and all of its flexibility, makes it stand head and shoulders above any of the alternate calculations out there.

Don’t Trust the IRS

We are all practically potty-trained to run everything we do by the experts.  If we are asked to sign a contract, we have to run that by our expert attorney.  If we want to understand the best business structure for tax purposes, we are told to check with our expert CPA (or another kind of attorney:  the expert tax attorney).  You get the idea:  check, check and double-check with those in the know.

In addition to our stable of highly professional professionals, we also have other highly reputable “experts” we should be able to rely on to determine if we are doing the right thing.  If we wanted to figure out what the tax implications and treatment should we want to rollover an IRA for instance, we might think the IRS would have the answers.  Let’s even say that the IRS has spelled out exactly how this IRA rollover should happen, and you diligently follow the documentation and the advice given by the IRS to the letter.  In this case, should we be able to rely on the agency that makes up the rules for the treatment of IRAs to give us sound, sage and legally accurate information?

Apparently not…

Yes, you read that right.  According to one judge, the IRS is not an “expert” in the field of IRAs and how or when to roll them over.

Huh?  Not an “expert”?  If the IRS, the rules maker, is not an expert — then just who is?

The case brought before this judge surrounds a couple and their “rights” to withdraw funds from their IRA once per year, hold these funds for 60 days, redeposit these funds into qualified accounts without incurring taxes or penalties.  The couple in this case relied on a publication produced by the IRS, Publication 590, Individual Retirement Arrangements (IRAs), as their basis for determining the legality of this action.  Simplifying the case quite a bit, here’s what we know:

The husband (a tax attorney himself) had two qualifying IRAs — one traditional, and one rollover.  He withdrew about $65,000 from each IRA within 3 months of each other.  The husband did repay these amounts within the 60 days as stipulated by the law. That’s not the real issue.  The real issue is that he took each of these distributions within 3 months of each other.

Part of the regulation regarding these distributions seems to say that you may not take a distribution like this more than once in a 12 month period.  You remember the husband took two distributions within 3 months of each other.  The court says that both of the husband’s IRAs are to be considered together when deciding if he has violated the 12 month limitation.  The husband says that the 12 month limitation applies to each IRA individually and he did not violate the 12 month limitation for each of his IRAs individually.

The judge ruled against the couple and the couple became liable for taxes and penalties.  In arguing before the court, the couple presented Publication 590.  The court used case law to back up its decision.  The couple had no case law to argue.

When I first read this story, I was outraged that the court would take such a radical stand.  After reading through the decision however, it appears that there is some ambiguity with the law, but the real problem is the IRS Publication 590.  This publication clearly outlines examples where you have two IRAs and you would like to roll these IRAs over.  The publication unequivocally states this is possible and legal.

The moral of this story?  Perhaps just as the judge said, “Taypayers rely on IRS guidance at their own peril.”  Be careful out there.

http://www.forbes.com/sites/janetnovack/2014/04/18/taxpayers-rely-on-irs-guidance-at-their-own-peril-tax-judge-rules/

Don’t Lay an Egg When Selecting a Multifamily Property!

Just for the sake of argument, let’s assume you’ve decided that commercial real estate is for you.  You’ve decided that investing in commercial real estate, and particularly multifamily property is the way to go to secure your retirement (and I would agree!).  You’ve decided as well that you are capable enough and educated enough to act as an active investor on your apartment investment, and for now, you’ll forego the passive investing route.  Surely, you think, if you can invest passively, why not invest actively for greater returns? Apartment buildings are, after all, just many little houses put together and that really isn’t that much different from your own house, right?  You’re excited and you can’t wait to get started!

It’s Easter Sunday tomorrow, and in the spirit of the holiday, let’s work on growing your nest egg, not laying a doozy that will crush your dreams of retirement.  Following this one simple guideline will stop you from making perhaps a multi-thousand dollar mistake.  When people get excited to begin a new project, a great many people do what seems logical in this day and age — they go to the internet.  This does seem to make sense.  After all, when you want to begin shopping for a new house, the internet is a great place to start — you can investigate new cities, new neighborhoods, neighborhood schools, local businesses, new houses for sale, resale houses up on the block, comparable prices and more.

When people first launch their search for multifamily apartment buildings (particularly 5 or more units), one website normally attracts most of the attention:  Loopnet.  Now, there is absolutely nothing wrong with Loopnet.  Here is the distinction you must keep in mind as you peruse those seemingly fantastic investments for sale on Loopnet — unlike residential real estate, there is no central listing service like the MLS for commercial real estate.  Let me say that one again:  Loopnet is not an MLS system for commercial real estate.  Not only does this apply to Loopnet, this is also applicable to any other website that lists apartment complexes and commercial real estate for sale.

Well, okay you say.  No big deal.  So you only get a portion of the listings — big whoop.  Here’s why this is important.  Loopnet and all of the other commercial real estate listing websites get these listings generally speaking, at the end of their sales life cycle.  What does that mean?  What it typically means that commercial real estate brokers have shopped this listing to everyone on their buyers list, shopped the listing to other brokers in their firm and their buyers lists, shopped the listing to others in their network and found no takers.  This means that many, many pairs of eyes have reviewed the property, reviewed the offering memorandum (a multi-page marketing brochure on the property), reviewed the actual financial performance and have determined the property doesn’t meet their investment criteria.

Of course you can argue that their investment criteria may be different from your criteria.  You have found a great deal and are perfectly willing to put your hard-earned dollars to work on this project, but consider this:  the number of reviewers on your find may be in the hundreds!  Hundreds.  You may want to consider carefully why each of those reviewers said ‘no’ to your great investment.

Don’t let your hunt for a nest egg investment turn your retirement into scrambled eggs (sorry, I couldn’t resist).  Consider carefully those ‘can’t miss’ multifamily investments you find online.

Happy Easter!

Does Your Attorney Know?

It’s astounding to contemplate the multitude of ways in which you can hold title to commercial real estate (and even your house!). On the commercial real estate side, it is presumed that you will not hold title to your property in your personal name. There are a great number of reasons why this is so. Most centrally you are likely concerned with several factors such as liability, asset protection, and taxes. Another reason you might look at certain formations or entities is privacy.

I visited a group on LinkedIn the other day that focuses on asset protection. I’m sure you would not be surprised to learn that the majority of the participants in this group are attorneys. After all, attorneys and the CPAs are the professionals that one who has interest in wealth management and preservation would turn to for direction and advice. It might surprise you to learn, however, that when a layperson asked a question regarding real estate and privacy, there was not just one succinct answer put forward by this very knowledge group of professionals. There was a varied and at points, contentious discussion about how to go about making the created entity stand up to interrogating eyes.

Why is privacy in your real estate something that should be considered, you ask? Thinking about that for just a minute, let’s explore some ideas:

• What if your family has a sizable number of valuable assets? You might prefer to not give the purveyors of public records the tools to estimate your total familial wealth.
• As an owner of commercial real estate, you may more naturally become a target for lawsuits. As you likely know, we live in an extremely litigious society. You may want to make finding out just who you are more challenging for those who love to sue.
• Let’s say you decide to purchase a 210-unit apartment complex; you may not want each of your 210 tenants knowing that you own the building. What if they decide that, since you’ve made yourself so accessible, they can give you a call to talk to you weekly about what is really wrong with your complex? It could be painful.

There is more than one way to skin a cat, or so they say. This is true with entity selection for privacy purposes. The immediate answers offered by the attorneys in that forum discussion was to create a LLC, or state-specific LLC. Not that this is the only solution or even the best solution, but it wasn’t for days that the suggestion to form a land trust was made. Land trusts may not be suitable for tax strategizing or particularly helpful for liability protection, but it might be just the ticket for creating privacy around the owners of real estate. One of the great things about land trusts is that they can be done without much fuss. Once documentation has been drafted by your attorney that suits your personal situation, and consultations with your attorney suggest feasibility, future executions of land trust documents may even be done without attorney involvement. Not only that but public recording of certain land trust documents need not be completed.

There are many websites that have fabulous education and guidance surrounding land trusts that are worth your time and effort to investigate. In the end, land trusts may be one elegantly simple solution to protecting privacy in your real estate transactions.