REI WEALTH MONTHLY Issue 31 - Page 34

LANDLORDS AND LAND TRUSTS RANDY HUGHES Most rental real estate is owned by mom and pop operations that have no separation between the “owner” and the “tenant.” The relationship that develops is one of an adversarial nature. The tenant knows that he/she is dealing directly with the owner of the property and therefore has an advantage when negotiating lease and maintenance issues. For example, when it comes time to renew a lease it is difficult for the owner of a property to drive up in his/her Mercedes to demand a rent increase. Not that the owner doesn’t deserve an increase, but the perception from the tenant’s point of view is that the owner does not “need” an increase. Most savvy real estate investors will hold title to their property in a Land Trust with perhaps the beneficiary being a Limited Liability Company (LLC) or Corporation. This structure gives the investor the anonymity of ownership from a Land Trust and the asset protection benefits of the LLC. Unfortunately, most tenants in America today think that the owner of their property is rich and has no cares in the world! It is a common misconception that people who own rental real estate are wealthy. So, when it comes time to renegotiate a lease the owner is at a distinct disadvantage. When a Land Trust owns title to real estate held inside the trust, the Beneficiary is NOT the owner. The Trustee is the full legal and equitable title holder. This means that as the Beneficiary you can honestly state (to everyone including tenants) that you are not the owner. This puts the Beneficiary in a much better negotiating position with tenants. As the property manager you only have certain powers bestowed upon you by the owner. Beyond those powers your hands are tied and it becomes a take it or leave it proposition. For example, when a property manager presents a rent increase to a tenant it is from instruction from the owner of the property. It is not up to the property manager to negotiate, just deliver the message. Negotiations become much more matter of fact when handled in this manner. The property manager is just “doing her job.”