Types of Investment Trusts & Their Use Cases | Real Estate Notes Show

Episode: Types of Investment Trusts & Their Use Cases w/ Mary Hart Dave's Goals and Plans: - Took the afternoon off to spend time with kids for spring break - Recently working a lot in the seller finance world - Typically buys in LLC or C-corp structure, not trusts except for IRA trusts - Encourages listeners to reach out to Mary directly for expert guidance on trusts Nathan's Goals and Plans: - Flying down to Nashville for DME conference in two weeks - Handling logistics for DME event including axe throwing activity the night before - Encourages attendees to get plane tickets, hotel rooms, and DME tickets immediately Key Recommendations: - Find out seller's needs and motivations for selling their note - they may be willing to accept less than face value - Be careful about how seller finance notes are structured and verify borrower background checks were done - If creating notes yourself, understand the rules around borrower qualification - When buying secondhand seller finance notes, do different due diligence than you would for bank notes - Bring a book of questions to the DME conference and actively network from day one - Consult with experts like Mary Hart directly for specific trust and wrap loan questions rather than taking advice as gospel Topics Discussed: - Shift in market from bank notes to seller finance notes - Reasons sellers want to liquidate notes for lump sum cash - Differences in due diligence required for seller finance vs bank notes - Wrap notes and proper structuring concerns - Land trusts and investment trusts in real estate investing - DME Diversified Mortgage Expo conference and networking benefits - Value of attending industry conferences at all experience levels Guest Insights: - Mary Hart is a licensed attorney with 34 years of legal experience, now technically retired but still consulting - Started as private lender 21 years ago and now operates Fair Oaks Funding hard money lending business - Has invested in vacation rentals, commercial spaces, self-storage, and wrap loans - Many lawyers don't understand real estate investing space including wrap loans and land trusts - she bridges this gap - Her rental property in Alaska started with $1,800/month mailbox checks in 2003, demonstrating long-term passive income appeal Hello.

Hello. How are you doing? Good, man. Before we get started here, we just uh reached out. Dan Deppin from Call the Underwriter is now sponsoring our show, which we're really excited about. Uh Dan actually has a toolkit for those who are creating notes. Not sure exactly how to do it. So, he has a cool toolkit. If you go to called theunderwriter.comjkp, there's a free toolkit for all those people out there who are creating notes and just want a quick guide on how to do that. So, please reach out to call the underwriter and fill out that form. So, so today is going to be really interesting. But before we dive into this guest host we have, it's that time of season where it's sunny out.

It's gorgeous out there. It is. Yeah. And the kids are finally I'm not sure up in Canada, but kids are spring break and they're home and they're going crazy. So, distractions are a must. Making lots of noise in the other room. That's fine. That's why we have a closed door. Yes, that's awesome. No, it's all good. Yeah, good Friday. Happy Easter, everybody. This is great. Yeah. So, you know, I kind of took the afternoon off to spend time with the kids for the time, Brian, and we got things going on and a lot of things we've been working with recently has been in the seller finance world. Um, thank you, Dan.

Appreciate Dan. We are streaming live on Facebook, LinkedIn, YouTube, and um all that good stuff. So, Dan Depp's over there in LinkedIn pushing this comment link out there. it will be in the uh as well as show notes as well as the link as well as be in the chat. So with that said, we are coming to a time where bank notes people really want these non-performers and we're not seeing them as much as we used to in regards to that. Uh we're seeing more the seller finance world. Yeah, there's argument that those are coming back and uh that's going to be more of a discussion at DME. So, we're hoping people come and join that.

That's going to be great. But, it's it's been interesting. I was just talking to uh Fell yesterday who also going to be a DME, but he's uh he's been in that world, more in the banking world, and he's saying he is seeing a rise in that. But like I say, the seller finance right now is really where it's at uh for the moment. Uh and I and it's been around forever. This is one that for a long time it was just kind of on pause because there were so many non-performers. But seller finance has been around forever for as long as lending has been going on. Yep. Absolutely. And I think people get the misnomer that this is the new scary thing.

And I think for those who are scared of it like you know at points we were at points is because we got so used to the very nice neat pretty note that we got going on. Right. Yeah. These bankr notes are awesome. But when we talk about these seller finance notes, um we had on our show a few weeks ago uh Jeff Armstrong and he shared afterwards he was buying notes at 3540 cents of performers. So seller finance world is a really interesting world because they're not the typical bank who needs to make a yield. They're emotional sometimes. So right, make sure you can make that and it's a win-win a lot of times.

Yeah. Right. Yeah. when especially when you're talking about a smaller seller, uh, find out what their needs are and and Jeff will talk all about that till you want to say, "Okay, thanks a lot. Well, I'll see you later." But no, he'll and it's a great point. There's different reasons for people selling their node. People ask me that all the time. Why does somebody want to sell their their node? There are so many reasons there. When it comes down to it, they want a lump sum of cash. How much? Well, that's up to for debate. And why do they want it? Well, that's a that depends on all kinds of different factors.

So, find out what their needs are uh and then go from there. Absolutely. So, when it comes to the seller finance world, there's there are a few things we got to be careful of, right? We have to be careful of how it's structured, what it's involved. Did they make sure that they did some kind of background check on that borrower? There's certain things we have to be careful of. And in that world, it's okay to be focused on that kind of stuff. Yes. Yeah. Absolutely. There is a different kind of uh homework that you got to do. Like especially if you're the one creating that note, uh you're having to qualify that borrower on your own.

There's rules around that and make sure you understand what those are and how that works. when you're somebody like us where you're buying it secondhand where somebody already created it. Again, there's different things you got to be looking at because like you say, Dave, these are not the pretty bank notes that uh that we've seen for years and years. Uh they're a little different and so you got to know what you're looking at and what you're looking for. Yeah, absolutely. I totally agree with you. So, you know, one of the things that we've run into recently, these rap note world and and what we've learned by doing the show is that we have to be really careful on how they're structured, right? Yeah.

And those who I've also heard of people doing land trust this trust. But before we dive into that, let's make sure that people you can watch his show on our YouTube channel and stuff, but I would definitely tune in to come down and meet us live down at DME. We are literally two weeks away from this amazing show that we're flying down to Nashville. For those who are not familiar with it, DME Diversified Mortgage Expo is a real estate note conference. Not note buying, note creating. It's a note conference in general. So if you are anywhere in the note space, we encourage you come down, take a look at it, spend a weekend with us and learn and network.

So absolutely. And then it's really interesting. So, I was at Noteworthy a couple of months ago now, and uh it was really interesting. I was I was surprised when they were kind of going around the room and seeing who's there at how many seasoned professionals there are there. So, it's an interesting dichconomy because you've got the people that are brand brand new that are barely hearing about notes and just trying to learn something about it. And then on the other hand, you've got the people there that have been doing this for years and years and have, you know, multi-million dollar funds or whatever.

I'm surprised at how many of those still come back. Yeah. And it all comes back to the networking there. Like you're talking easy half the room are going to be people be people that are already in the business that have been doing this for years. And so why do they keep coming back? It's all about the networking and just getting back and and connecting with the people that you've been working with for however long you've been doing this. Yeah. And you know, it's funny. You and I talk a lot and I think that what we don't realize that we learn from each other every time we talk which is that's true amazing and it's a good reason to always get together with people.

There's people there that I'm going to learn from that I've talked to a million times. So make sure you come down there and have a book of questions you want to ask. Get some topics. Look at the stuff. Really see what topics you want to dive into and start asking questions from the day time you walk in there. We're going to tell you what it's going to look like. You're going to walk into that hallway and you're going to see a room full of people you may or may not recognize. Go up to them, talk to them, meet them, introduce yourself. And note investors are some of the friendliest people on the in on the planet.

They're just open, friendly. Everyone is there to share their own experience and how you can take whatever wherever you're at and go to the next level. Yeah. If you have any question about the conference coming up, please put in the chat. We'll check it out and answer it as we can go along here. And if you have any particular questions about anything the hotel or any of the events or if you need anything regarding the axe throwing the night before, reach out to Nathan. He'll give you all the download on that. Yeah. If you haven't gotten your tickets, you got two weeks. Get on it. Yep. Yep. Get that plane ticket, get that DME ticket, get that hotel room or whatever you're going to stay at.

So, yeah. Get there. When we look at investment trusts, it's something that we typically don't buy. I buy an LLC or seek where I don't buy in a a trust except for my IRA trust which a little bit different but trust is something I hear a lot about and again guys who watch us and ladies who watch us regularly we do these shows to learn from them not only to present for you guys but we learn from those stuff so I'm very curious about these different trusts that are out here I hear them all the time and I don't know what they all mean and I take the word for the person who's talking about them that they know what they're doing But we found in the rap world that there's a right and a wrong trust and this that wait a minute.

We will preface this that if you have a particular situation we encourage you to hit the bit link below and reach out to Mary directly and ask questions. So yeah, get get your information from the experts. We're like you say Dave, we're just here learning. So whatever we say, I mean it's probably good, but don't take it as gospel truth. Get it from the experts. That's what Let's bring Let's bring her in. Mary, how are you? I'm great. How are you gentlemen today? Doing well. Great. Yeah. It's good to see you. You look great. You look great. Oh, thank you. Thank you. Thanks for having me. And I hope you don't hear my lawn mower out there.

The mowers just showed up, so I'm probably We've been there before. That's all good. We don't hear anything. So, Mary, can you tell us a little bit about yourself? How did you get in the space you're doing now? What how'd you get introduced to this whole world? So, I uh was just practicing law. I'm a I'm a licensed attorney. I've been one for 34 years. I'm technically retired now, but I am still licensed. And um I was practicing in Alaska and moved back to North Carolina about 21 or 22 years ago. Um opened a practice in Asheville, North Carolina. And then I did not want to sell my house in Alaska because I thought I might want to move back.

So I turned it into a rental. That was my first long-term rental. Man, did I like those mailbox checks. I was like, "Wow, this it was like $1,800 in 2003." That was I thought that was a lot lot a lot of money for me. Sure. And I was just going along practicing law. Somebody asked me to be a lender. So I said, "Sure, I have some cash." So I became a private lender about 21 years ago. And then someone else asked me to go learn from Dyes Bford about self-directed IAS. So I went down to his conference with Dykes and with Quincy Long. And of course Dykes always used to ask, "Who are all the lawyers and CPAs in the room?" And so of course I raised my hand as a lawyer not knowing he would then ask me questions throughout the entire weekend along with John Hire and Jeff Watson who I believe were also in the class.

Um after that he asked me to teach with him. So I started teaching with him and then other people asked me to teach when they learned I taught with Dykes and that just opened up a whole world and over the years I just started investing in a lot of different things. So, vacation rentals, commercial spaces, self- storage. Um, and I'm I have a hard money lending business now. Fair Oaks Funding. So, got a lot of fingers in a lot of pots right now. Awesome. Good for you. And but retired, so that's all good, right? Retired from lawyer. I still consult if people need my specific skill set because what I've realized is a lot of lawyers don't understand the real estate investing space and things like wrap loans and land trusts and all of that.

And so if someone really needs me, then I will consult with them and help them come up with a plan they can then take to their lawyer to execute. And even I've even had to teach some other lawyers what land trusts are, what self-directed IAS are, why LLC operating agreements have to be different for self-directed IAS than regular LLC's, you know, things like that. Um, so but that's I don't advertise for that generally. That's just only if somebody knows about me and really needs me. Otherwise, I just say call your own lawyer, your estate planning lawyer, your trust lawyer, and see if uh you can get them to do it.

But I am available. It's necessary. You've been in for a long time, and you've learned, you've had mistakes, you've grown. And I think people underestimate the power of time and the education you get. For those people who've been in this thing for a year or two, it kind of gets scary to deal with them and work with them when they say they know it all where you haven't been through the problems, right? You may know the basics. You may have a good understanding, but when things go wrong, is when you learn the most, right? Yeah. Yeah. Soon as someone says, "I know, I know, I know." Which one of my children does to me all the time, an adult child.

I'm like, if you have to say, "I know, I know. I know." That tells me you probably really don't know, and your mind is not open. So you you're you don't know what you don't know and you're going to make a mistake. Yeah. Right. So I always say even me at 34 years of experience, you know, I look at other people's YouTube videos, make sure I'm not missing something, right? And if they say something I'm not sure of, I go research it further because, you know, I'll never believe I know everything. There's always something to learn from someone who's done more than I have. I think there's a turning point where you go from I know, I know, I know to know anything.

It feels like you kind of shift gears and you start realizing, you know, and you feel comfortable saying, I'm not sure about that. What does that mean? Right? I I tell people all the time, I have no ego involved in this. I just want to learn and be the best I can. So, if you know something I don't know, please teach me. Yeah. And when I'm mentoring, because I do a lot of mentoring, I that's one of the first things I tell people is one, there are no stupid questions. Two, don't act like you know everything because there's no way you do. And just be an open book and be vulnerable to learning new things.

And that's how you'll get further. One of the ways. That's perfect. Yeah, that's great. So Mary, can you let's start off very easy. A lot of people are aware of the IRA trust and the IRA directed IRA. Um, tell us a little bit about how that's structured. What makes it different from an investment trust that someone may do for a land purchase or a rental property just overall? What would be the or let's start off with this. What are the different types of investment trust vehicles out there? Let me go back even a step further because what I find is this world of trusts is just like this black hole that nobody really understands, right? Yeah.

So, a trust in and of itself is really nothing more than a contract, right? It's a contract between the person who sets it up. We call them the grtor, the trust or the set. It all means the same thing. It's a contract between the grtor and the trustee. Most cases it's for the benefit of the beneficiary. Sometimes there's a beneficiary that has some control, but um it's just a contract. So, real estate people understand contracts. That that's all it is. There are some states that have statutory trust that you can they literally have a statute that says how you can treat them, how you can set them up, like an Illinois land trust, uh for instance, Virginia business trust.

Otherwise, just because a state does not have a statute does not mean a trust is invalid or illegal. It just means it's just a contract. Within that, there are different types of trusts, many types of trust, but they kind of come in a couple of different categories. They're either revocable, meaning when you set them up, you can change them or revoke them, terminate them, or they're irrevocable, meaning you cannot change them or terminate them once you set them up without a court order, which is a lawsuit and expensive. So, they're either revocable or irrevocable. You either set them up during your life.

We call those intervivibos or you where they take effect during your life or you set them up to take effect only upon your death which is called a testimeamentary trust. Okay. So, and you can set up a like a revocable trust during your lifetime that has parts of it that's effective while you're alive and then maybe it creates subtrusts that don't kick in until you die. Like for me, my living trust is for my benefit, but when I die, it'll split into subtrust for my children. Those are just words in my revocable trust document right now. Those are what we call testimentary trusts. They don't kick in until I die.

So, in the world of trusts, I'm trying to give a little bit more of an overview, revocable trusts, generally speaking, are not creditor protected at all. And the reason they're not is because the general rule is is if you have control over an asset, you can take assets in or out of that trust. You can revoke the trust and change what happens to the assets. If you have control, your creditor can get access to those assets. Okay? So, if we want true creditor protection, then we have to do an irrevocable trust. And an irrevocable trust, that's a trust that is literally its own irrevocable entity.

It has its own tax ID number. If I set up an irrevocable trust and I transfer an asset to it, it's like transferring it to you, David, or you, Nathan, right? It's just transferring it to a third party. And in most cases, I have to give up all control. I cannot be the trustee or the beneficiary. I'm simply the grtor and I make a gift to that trust. That's what makes it um creditor protected. There are states now in the United States and this by the way what I'm about to talk about started in 1997 when I was practicing in Alaska we had the first domestic asset protection trust and it was the first state that allowed you to set up an irrevocable trust one of the reasons for creditor protection.

So you could be the grantor you could set it up transfer assets into it and if you meet certain rules then you can remain a permissible beneficiary. That was a brand new thing in the law in 1997. Now there I don't remember how many states now 12 or more states in the United States that allow that. Um but Alaska was the first and that was important because usually if you set up a credit or protected trust that was irrevocable you could not ever get another asset or dime out of that trust. You were never to be a beneficiary. Right now with these trusts you can hold your hands out like Oliver Twist and ask the trustee please may I have some assets? And the trustee can say yes or no.

So, you want to pick a friendly trustee, right? But, uh, if you meet the rules of those states, then you can remain a permissible beneficiary and they are creditor protected. They're out of your estate for estate tax purposes and all of that. So, that's sort of a general overview of different types of trusts. Within those categories, there are so many different types of trusts I can't even tell you. They're like, and they all have acronyms like ISIL and Qert and CRUT and NIMRUT and all these crazy Q dot and you know, DAPT, all these crazy acronyms. The ones I see used most often with real estate investors are, of course, you have your revocable living trust for estate planning purposes.

You have your land trust, you have your paper trust, you have your self-directed IRA owned trust. Those are the ones I see the most often in the real estate investor world. So, so now to get to your question about the self-directed IRA owned trust. Real quick, we had a question on YouTube from Mima Bront. So, do all testimonial trusts go through probate? Testamentary trust? No. Testament, sorry. No, they will. So, let me that's a very good question. And let me give a quick little primer on probate and on wills because this is one of the biggest misconceptions I ever find. The only thing that goes through probate is something you own in your separate individual name at death.

So if my house is the deed to my house says Mary Hart it will go through probate when I die it will go through my will if I have one or if I don't have one it will go according to what my state legislature has said I call that the legislative will every state has set up a default will for lack of a better term that if you don't set up your own will and you die with something owned in your separate name that state legislative that statute in your state will say who inherits that house and in what order? What priority? So, but let's say I had that house and David, you and I were on that deed as joint tenants with a right of survivorship.

Okay. What that means, one, it's not in my individual name anymore. It's in my name and your name with a right of survivorship. So, the moment I take my last breath, you own that house outright no matter what because you had a right of survivorship. So, same house, I'm still an owner, but two different deeds dictate two different ways it will pass at death. Wow. If something is in a test, what we call a testimentary trust, and that trust is set up in your will, so let's say I owned that house in my name and it goes through my will first, goes through probate, and my will says, "Put it in a trust for my kids." That's the type of testimentary trust that will go through probate.

But it's not because it's a testimentary trust. It's because I died with that asset in my separate name. Now, let's say that I owned that uh house that a land trust owned that house or my revocable living trust owned that house. Now, that asset is not in my individual name. Right. Correct. So, if I die, it's not a probate asset. It's owned by me as a trustee or if it's a land trust, probably some third party as a trustee. And when I die, that house will just pass according to the terms of the trust. So if my revocable living trust says when I die that house gets goes into trust for my children.

Same effect as if I did it through my will except I'm now avoiding probate. So I in my revocable living trust I've created the same type of subtrust that will go to my kids when I die. It's a form of testimentary trust even though it doesn't go through a last will and testament goes to my revocable trust but it's testimentary because it they don't take effect until I die. So I can change the terms of that until I take my last breath or become incompetent. But the moment I die, my revocable living trust will say, "Okay, create these three subtrust for Mary's children." Um, and distribute the assets into it.

Totally avoiding probate because of how the asset was held. It was titled in the name of my trust, not my individual name. So it all comes down to how things are titled at the time of death, whether it avoids probate or not. Wow. So good question. And so So, I understand that then that that avoids probate. I think that's a huge advantage to having a revocable living trust. Um, are there like tax advantages? Like why else would you set up a a living revocable? So, uh, there are a lot of reasons to set it up. Uh, we can do when we have to define what type of taxes we're talking about, right? So, income taxes, um, your revocable trust is ignored for tax purposes.

Oh, okay. So, it's just treated like you. So all the items of income and expenses just pass through to your individual return. So long as you are alive and competent and you know once you become incompetent and somebody else becomes the trustee then usually we get a tax ID number. But for the most part my my revocable living trust just goes under my social security number. My CPA doesn't even care about it. They just take those items of income and deductions and put it on my personal return. um for estate taxes or gift taxes, we can do a lot of things through a a revocable living trust, but we can also do those same types of things through a will.

So, it doesn't necessarily give you a whole lot of advantage outside of what we do with a will from a tax standpoint. Um, but it does from an asset management standpoint, and I'll go over that in a minute, from the avoiding probate standpoint. Le let's talk about management. If I had that house in my separate name and I became disabled, okay, uh someone would have to either go get appointed as my guardian to be able to manage my house or sell it for me or they would have already had to have a power of attorney from me giving them the power to sell my house. Let's say I needed the money for the nursing home.

Yeah. If if on the other hand that house is already in my revocable living trust and I'm the initial trustee, it will always list an alternative trustee, maybe even two or three alternatives depending. So if I become incompetent and I can no longer be the trustee, it's just a letter for an affidavit from my doctor saying I'm incompetent and the next trustee just steps in. We don't change the title of the asset. I mean, if we're selling it, we do, but we don't have to change any signature cards necessarily at the bank. We just it's a new trustee. You know, some banks will make you change the signature, but we're not changing the ownership of the asset.

Trustee the alternate trustee just steps in to manage stuff. Okay, I get it. I get it. Interesting. So, I hear a lot of land trust, right? We even have an indeed trust, right? That kind of world too. Is in the land trust world. What would be one of the key reasons people are using land trust now? And what is some ways they're using it incorrectly that you've seen? So let me tell you first the difference a revocable living trust and a land trust because that's key. Okay. In a revocable living trust of course the trustee has title and that's true in a land trust as well. But in a revocable living trust the beneficiary is just completely passive.

They have no rights. They can't change the trust. They cannot direct the trustee at all. In a land trust, because of the the laws and the way they're set up, the trustee for the most part can't do anything without being directed by the beneficiary. Totally totally different. Totally different. Wow. So, people use the land trusts a lot in real estate investing um for a number of reasons. But let me before I even say that, let me back up and make sure people understand neither of those trust is credit or protected. I see a lot of misconception out there that land trusts are creditor protected vehicles.

That is absolutely false. 1,000% false. All it does is maybe make it hard for people to find the trust or provide a smoke screen. But because it's one of those revokable trusts and you have control over it, then uh it is not creditor or protected. So what are the benefits of a land trust there? It's anonymity. You know, usually the land trust document prohibits the trustee from giving a copy of that trust to anybody. So they don't get to see who the beneficiary is. It allows us, let's say we have multiple owners, then either within that trust or within a beneficiary agreement, we can dictate just like an operating agreement or buy sell agreement or anything.

We can dictate the terms of various rights for the various parties, who gets what, who doesn't get what, who controls what, all that. That's one benefit. If you have multiple owners um and they're all on a deed, say as tenants in common, if somebody wants out, they can force the sale of that property through a partition action in the court. Wow. If on the other hand, a land trust owns that property and all those let's say five beneficiaries are beneficiaries in the land trust, there's only one owner, the trust. There is no partition, no right of partition. So the beneficiary agreement or the trust agreement will set out what rights does any one beneficiary have to get out of that trust and get their money out.

Wow. It is also a way that you can move things a lot faster. Let's say I have a house and I want to sell it to you, Nathan. Um I'm if it's just in my name, I've got to do a deed. I've got to pay the transfer taxes. I've got to do all that stuff. Right. Right. If however my house is in the you know MEH land trust my initials which I would never do but let's just call for for this example the MEH land trust then I don't ever have to change the owner on record. If I'm the 100% beneficiary which you never want to put in your individual name but let's say my LLC is the beneficiary then that LLC can just assign the beneficial interest to you Nathan and now you own the trust which owns the house and I'm out.

Nothing changes on the public record. It's all I know a lot of people use that too for you know avoiding the tax purposes of like if I sell the house to my kids then their taxes the point where they you know obtain the property and then the estate tax come in there. Is that correct where the the basis of that property doesn't change because the owner of the property never changed hands even though I died and my kids now own it because it's in that trust there's no basis for them taking over that asset. That correct? That's actually not accurate. That's not accurate. Okay. Because, and again, it depends on whether we're talking about a revocable or an irrevocable trust.

So, land trusts are generally revocable. Because you want to be able to change them and terminate them, right? Sure. Again, um this gets to sort of that same idea I was talking about with creditors. If you can control the trust, like a revocable living trust or a land trust, then the assets in that trust, the value of them are going to be added to your taxable estate to see if you have an estate tax issue, right? you it will be added up. It'll say you have a net worth of X million dollars or whatever. Whether you pay taxes will depend on the tax laws at the time, but it will be added to your ledger as your taxable estate.

So when something is added to your ledger for your taxable estate, then you get the step up in basis when you die. Okay? So let's say that I put um and this is going to show you the difference between re revocable and irrevocable. Let's go back to that house. Let's say I paid $100,000 for it and now it's worth $500,000. If I transfer it into my revocable living trust or my land trust, there's no gift tax consequence at that point because I'm the owner of those trusts. So, it's just like giving it to myself, right? And everything stays exactly the same. But when I die now, let's say it's worth the 500,000.

That 500,000 is going to be listed in my ledger as part of my taxable estate. Because of that, the tax basis will jump up. It'll step up to $500,000 on the date of my death. So, when my children inherit it, they will take a new tax basis of $500,000. Now, let's contrast that with me putting it in an irrevocable trust. When I make the gift of that house to an irrevocable trust, I am making a taxable gift because that irrevocable trust, remember, is a separate entity. I don't own it. I don't control it. I'm just gifting assets to it. Mhm. So, I have to file a gift tax return probably to say I'm putting that in there.

That's a whole another topic we don't have time for today. But once I put it in there, let's say my basis is still the 100,000 I paid for it. That trust, that irrevocable trust now gets a carryover basis of my 100,000. So, if that trust says at the term of the trust, it goes to my three kids, they're going to get the $100,000 basis. They do not get a step up. Wow. because I did not own it at death. It was not added in my ledger at death. I I had given it away irrevocably during my lifetime. And forget the use of trust. Let's say uh Nathan that I gave you that house during my lifetime and my basis was $100,000.

You take my $100,000 basis because it's a gift. If you bought it for me for $500,000 and you literally paid me 500,000, you'd get to jump your basis up to 500,000. Sure. if I just gave it to you because you know you're a nice guy. You take my $100,000 basis. So, do you see the difference? Wow. Yeah. It all depends on when it's transferred and how it's transferred, whether you get whether they're gift taxes, whether you get a step up in basis, all that. So, kind of like the difference between IRA versus 401k like that. Well, no. I mean, yes, but no. I mean, there pre-tax versus pre pre-tax versus post tax kind of thing.

That's that's versus traditional, you know, that but really it comes down to that whole idea of whether at the time of death you own and or can control something. And if you own it or control it, like I own it name, if it's in my trust, my trust owns it, but I'm the trustee. I can control it. You know, all that. Yeah. So, if I own it or control it, it's going to be taxed in my estate. Whether or not I actually owe taxes depends on my credit available at the time, but it's taxed in my estate. If it's added to my estate for tax purposes, it's going to get a step up in basis. Gotcha. If I have irrevocably given it away during my lifetime, my recipient, whether it's a trust or an individual, gets the carryover basis, the $100,000, and no step up if I die 20 years later.

It sounds to me that these the big difference between all these trusts is the fact that can you control it or you're not controlling it. That that's the two giant categories. Can you control it? Can you not control it? Second giant category, when is it set up? At death, during life, you know, all that. Um, within those categories, there are many, many different types of trust for many types of purposes. Can I say one just as an example? Yes. Well, let's talk about a very common irrevocable trust that I think a lot of real estate investors might want to think about if they have large life insurance policies.

People always hear that life insurance is not taxable, right? Yes. That's true for income tax. That's not true for estate tax. Oh. So if I have a $3 million life insurance policy and I'm the I have any incident of control or ownership in it, even if all I can do is change the beneficiary, then when I die, plus $3 million goes in my estate column. So you get the tax on that. So if I'm in a 50% or 40% estate tax bracket, Yeah. half of that going to the IRS, right? Yeah. Now, why is it going to the IRS? because I owned it or had an incident of ownership at the time of death. Well, let's say I I don't because I have either bought that life insurance policy through an irrevocable life insurance trust, an eyelet, IL, or I transferred that policy into an eyelet and I live for at least three years afterwards.

We'll talk about that in a second. Then when I die, I don't own that policy. So there is no $3 million added to my taxable estate, right? it just goes to my kids free of income taxes, free of estate taxes. It's a beautiful tool in the right circumstances. But that's one of the reasons a certain type of irrevocable trust that takes it out of my estate for tax purposes, but once I put it in there, I'm not the trustee and I'm not the beneficiary. I don't get to control it anymore. So, it's not taxed in my estate. Sure. Right. Go according to the terms of my trust. It will avoid probate. It'll go to my kids or my husband or wherever it goes.

That's awesome. Interesting. without uh being in my estate. So you I cut you off. You were going to ask another question. But no, that's interesting. Yeah, it's amazing when we learn this stuff, right? Um we did have a question, a bunch of questions here. I'm going to skip some of them just because they're particular to the thing. We recommend you reach out to Mary directly. Um land trusts are generally forever trusts or do state law dictate when the trust shall dissolve if the single beneficiary of the trust dies while trust is in effect? So it all depends on how the trust is written number one.

So if you write them in perpetuity, most states, probably all states have a rule called the rule against perpetuities that says certain trusts trusts have to end within a certain period of time. And it was like we we learned this singing in law school. It's like no interest is good unless anyway blah blah blah. Not going to sing the song, but um it's it's like a couple generations below you. Sometimes it's 90 generation 90 years after the trust is set up or whatever it is in your state. So in some cases there are state statutes that say when a trust has to terminate. I personally like to put a termination time in it.

It might be 90 years. It might be 50 years. I sometimes will give the trustee the the authority to terminate a trust if certain circumstances are met. Um so I don't know if that answers the question, but I think why would you want an end date? Why not just have it eternal? Well, I I think that's a classic lawyer answer. It depends on what your goals are, right? Like there are what we call dynasty trusts. We usually use them with revocable living trusts that go down for generation after generation after generation. Yeah, that's what I was thinking. But they are set up so that when the first generation dies, those subtrusts where it goes to the next generation are irrevocable trusts.

So we want them in there to avoid estate taxes on the second debt, you know, the second generation, to avoid creditors, avoid problems in divorce, all these things like that. That's not a land trust. You know, when does a land trust become irrevocable? That depends on what the trust document says. Does it ever become irrevocable? Um, give you another example of of something you mentioned, the wrap lending. There are people, and I'm probably going to do this too, but there are people who if they're not doing a wrap, but they're doing like a fractionalized note. So, you have multiple lenders. Let's say I'm a lender, my company's a lender, and Nathan, you come in as a lender.

Um, rather than having both of us on the note and the deed of trust. What? Let me back up. Let's say it's my company, Pharaohs Funding, and I've run the whole deal. You're just a passive investor. You're going to give me $100,000 on a $200,000 loan. I'm going to put in a hundred. you're going to put in 100. Um, I don't want to have to go chase you to sign the certificate of satisfaction when you get paid back. You know, a lot of people are not sophisticated investors, but they may want to invest passively. So, in that case, we will do the note and deed of trust in the name of Pharaoh's funding.

We will then um have a specialized lending trust. It's basically like a land trust, paper trust, where we set out the beneficial interest. you know, let's say I'm going to pay you 9 or 10% as my passive investor. That's all set out in the trust. My company's the trustee. All these things. So, all our rights are set out in that trust document. Then I assign the note and deed of trust to the specialized lending trust, but we don't record anything unless the note starts to go south. Then we record all that and we can foreclose in the name of the lending trust. But if everything goes swimmingly well, then when the payoff comes, the payoff just comes to Pharaoh's funding.

I run it through my loan servicing software and it says, "Oh, pay Nathan this amount and pays funding that amount." And I spit out the payment to you, but I don't have to go chase you to sign the certificate of satisfaction because it still just says Pharaoh's funding on the deed of trust. I don't have to worry that a closing attorney will want to issue two different checks and not understand the difference between the passive investor making eight or nine% when the borrower is paying 11 or 12%. All that is set out in our trust agreement. So that is a form of trust that we use a lot in lending.

Why did I mention this one specifically? Because the one I've looked at which came from a friend of mine, Ray Burkhalter, it's a Nevada domestic asset protection trust. It's a hybrid. starts out revocable, but as soon as the loan is made, it becomes irrevocable for two reasons. One, so neither me nor the other investor can change anything. Two, it becomes creditor protected, right? Under the laws of this one, I think it was Nevada, which is a domestic asset protection trust state. And so that that now irrevocable trust is sitting out there that will ultimately be the vehicle through which we spread the um the note proceeds according to whatever agreement you and I have come up with.

Right. So that's another form of trust. It's a hybrid. Starts out revocable but quickly becomes irrevocable. Yeah. Um and that's for the purposes of well like I just said creditor protection and keeping it um safe. Those the trusts like that that flip to irrevocable or start out irrevocable. If you want to remain a beneficiary, they have to be done under the laws of one of the states that allow the domestic asset protection trusts like Nevada. Interesting way to set up like a it's it's um it's like a next level JB partnership. Yeah, that's why you're Yeah. Yes. Except it's Yeah. And it's it's you know JB partnerships.

And it's interesting because as the lawyer, I hate it when we call them JB partnerships because the partnership is a legal term, right? Yeah. And you can have a partnership just de facto, meaning just based on the facts, it can look like a partnership. Why don't I like that? Because in the law, a general partnership, each partner is 100% liable for anything that happens in that partnership. Right? So if if David went out and ran up a $100,000 debt in the name of the partnership, they could come after me for it. Right? So I don't like putting the word partnership with JB, but you should have a joint venture agreement and in that say this specifically is not to be deemed a general partnership.

Yeah, my little tip. So we had two basic questions that came through. What would you define a land trust? For the longest time, I thought land trust meant trust that was developed to a a piece of property, right? And it's not that, right? And the other question is why would you use a trust versus LLC is two questions that popped up. So, first define what a land trust is. It's not a vacant land that you just put in an entity. It's a It can be because those are also called land trusts, but that's not what we're talking about here. A land trust that's more more like the conservation thing are usually based around charitable organizations who put a land trust together or call themselves a land trust.

You know, Three Rivers Land Trust is one I support for instance, but their job is to conserve property, put conservation ements on it, whatnot. That's not the type of land trust we're talking about. When we're talking about a land trust, it basically is the a trust that we use as a title holding trust. They holds the title to the real property. It has a trustee that is usually different than you because you don't want your name on the public record because the whole point of this is anonymity. Um, it has beneficiaries that direct the actions of the trustee. And if there are multiple beneficiaries, we have a beneficiary agreement setting out the rights and uh obligations for each of those different beneficiaries.

Are you named as a beneficiary or are you naming something else as a beneficiary to kind of keep your So, so there are different ways to do it. I don't like to be an individual beneficiary because then there goes any potential credit protection you had. And let me explain that to you. Um, so because these land trusts are not creditor or protected at all, any asset owned by it is potentially subject to a judgment. If the land trust gets sued, somebody slips and falls, uh, you've got a house in there, it's got some equity in it. If the land trust gets sued and loses, the equity in the house can be taken.

So, I don't put high equity things in land trusts. I I actually personally don't have any land trust because all mine are high equity. Um, but what's even worse, if I were the individual beneficiary, let's say that um, uh, somebody then added me on as the beneficiary to that lawsuit, there's no LLC credit or protected wall anymore. Right? Now, it's my individual name. Somebody sues the land trust, wins a million-doll judgment, and there's only 50,000 of equity. They can just go right through that trust to me as the beneficiary and get my personal stuff. I personally like to either have an LLC as the beneficiary so you have that creditor protected wall or if I run a stop sign and somebody gets a judgment against me personally, they can't get to the assets in the trust because I'm not the individual beneficiary of that trust.

Um, so I like to either have an LLC as the beneficiary or if you're really willing to put up with a little tediousness, I'll name a personal property trust as the beneficiary of the land trust and then I'll name my LLC as the beneficiary of the personal property trust. Why? Because if my house is in the land trust and someone sues the land trust um, and if a judge lets them see a copy of the trust document, they're going to see my LLC name. They can go to the Secretary of State's website and find out I'm part of that. Sure. But if the LLC, I mean, if the land trust has a beneficiary that's a personal property trust, all it will say is the the ABC trust, well, that's a private document.

There's nowhere on the public record that says who the beneficiary is of the ABC trust, right? And a personal property trust is typically if you your own house you want to give to your kids and and No, no, no, no. So real there's real property and there's personal property in the law. Yeah. Let me back up even further. I don't really like the way people say land trust versus personal property trust. To me, I use the same trust document for all of it. Okay. It just means a type of trust where whatever's in there, the trustee is directed by the beneficiary. Right. I call a personal property trust when it owns personal property like a note.

Gotcha. A land trust owns real estate. Gotcha. But I've seen I've seen personal property trusts where people have notes in there, but they never give the trustee the power to own real estate. So, how do they foreclose on a house with the note? So, to me, it's the same type of trust because I want the same trustee powers in there regardless of the type of asset that it owns. I just put the title up there. I might say land trust or personal property trust just so somebody looks at the trust document, they know the intent of it. Is it to hold paper like promisory notes? Is it to hold land like real estate? You know, so he asked another part of that question where I forgot what it was.

Got what would you say the difference between a trust and an LLC? If me and Nathan want to go into note business together, we can create an LLC and be a partnership or we can create a trust and be beneficiary of that trust. Why one versus the other? So, I think it depends on what type of business you're doing, what the entity is going to hold, and what the level of liability is, and what level of anonymity you want. Got each one is going to be different. There is no doubt that an LLC has way more creditor protection than a than let's call it a land trust. any type trust, personal property trust, whatever it is, LLC is going to have more creditor protection.

Land trust is going to have more anonymity. Right now, I've heard a certain guru say that land trust will avoid the do on sale clause, like if you transfer it to a land trust. I don't believe that's true depending on how the land trust is set up because you have the Garn St. Germaine Act is what gives the banks the power to call the do on sale clause, right? There are exemptions to that. One of them has to do with if you transfer to a trust but where the beneficiary stays the same and the occupant of the house stays the same. So it would work for your revocable living trust. I don't think it works for both land trusts where people have a tenant in there.

Right. I think that's because I think the big thing you're talking about there is when people have a subject to and they take over property and then they do a wraparound mortgage around that and then they they put into a land trust to avoid the they put the original borrower in the land trust and then they become a beneficiary of that but then the original borrower is the trustee I think it is of that account they're a beneficiary beneficiary and then they then sell the property to to Nathan and wrap that first mortgage. Yeah. Yeah. So, you just have to look at the the Garn St. Germaine Act. Do the facts of that mean you're going to be exempt from the do on sale clause? There's it's probably I don't know.

It's hit or miss whether transferring to an LLC will be exempt from the do on sale clause because technically your documents, your note, mortgage say you can't transfer to a third party most of the time. Well, your LLC is a separate legal entity. Or is it? It's a separate legal entity for state purposes. But if it's a single member, it's a it's ignored for tax purposes. So, you know, it's kind of hit or miss. So, it depends on what you're worried about. Um, I've been doing this for 34 years. I've never seen anybody call a note due just because something got transferred. Um, could it happen? Absolutely.

Is it more likely to happen in a time where the original note was at a very low interest rate and now some zealous young banker says, "Oh, I can make them refinance this at a much higher interest rate." Certainly could happen. So I think the other thing I think is that e either of those an LLC or a trust we can set out the rights and obligations between the beneficiaries and either one of those it's either in the trust agreement or in the operating agreement right e either one we can set out the terms of what happens if one person wants out one person dies becomes divorced goes through bankruptcy you can put that oh yeah yeah you can put that in your operating agreement or your trust agreement so I I think it really to me it comes down to the creditor protection issue and versus the anonymity is the main thing.

If I'm like for me personally, I don't do a lot of wheeling and dealing other than lending. I mean, I have my assets and they're all in LLC's because they're incredibly high equity. You know, I think my lowest equity in anything is like $500,000 and some of them go up to a couple million, right? So, I want the absolute credit protection of an LLC. Uh, so I'm the LLC and I'm going to manage it properly and make sure that I have that that legal block. If, however, I were the type of real estate investor that was just wheeling and dealing a lot and assigning interest right and left and I didn't have a whole lot of equity, I might not worry so much about the creditor protection, I might really like the ease of management and the anonymity of a land trust.

Mhm. Or let's say that I was trying to uh aggregate a bunch of different pieces of property and I didn't want all the neighbors to know that I was trying to buy everything because then they're going to jack up the price. Well, if I bought each parcel under a different land trust, they're not going to know. It's one the same person buying up everything, right? So, they're not going to jam me up on the negotiation. So, it really just depends on what you want. And by the way, let me back one more thing. Yeah. on the liability, especially if I have real property, you know, you've got tenants in it.

There's a lot more potential liability in that than there is in owning a note. Yes. If I'm lending, I don't mind lending out of a prop personal property trust or whatever because people don't sue the bank when somebody slips and falls. I'm just the bank. Right. Right. Yes. So, I'm not so worried. I might rather be able to move quickly and and just use those trusts as opposed to an LLC. Is there an annual fee for trust like there are with LLC's? no annual fee for trusts. Um, unless you're doing something maybe like a Virginia business trust or whatever, but most trusts are just private trust documents.

They're not recorded anywhere. There's no annual fee, filing fee or anything like that. They're just private contracts. Are they difficult to set up? Like why does everyone do this? Yeah. Why why am I creating LLC's for buying notes? Why don't I just go ahead and create the trust that's no annual fee and I name my wife as trustee kind of thing. Yeah. If you're not worried about the liability protection and you just want to use these, I would say hire a lawyer to create your first one as a template in the state in which you want that note to be. And then you can reuse that template. You've just got to be really careful to make sure you're changing the names, the legal description, all that because people forget to change and then your note is not enforceable because it's got the wrong information in it.

I mean, your trust is not forceful. So, uh, I would always use a, um, lawyer first. Like for me, I am a lawyer, but if I decide to use this Nevada specialized lending trust that I'm looking into, I'm going to hire a Nevada lawyer to do it. I'm not licensed in Nevada. I can't set up a Nevada trust. I could set it up for myself, but I'd be a fool to do that because I don't know the laws there. Gotcha. Right. We do have a question over on Facebook. Um, as I understand, trust is just an agreement between parties. Is that correct? That's correct. It's just a contract between the parties. We said that at the beginning.

It's a contract between the person who sets up the trust, the person who's the trustee, administers the trust for the benefit of the beneficiary. Yeah, it's just a private contract. That's awesome. Unless you're doing it under one of the statutes like Virginia business trust or Illinois land trust or whatever, Delaware statutory trust. There are a few things like that, but for the most part, it's just a private document that requires no state filing. Okay. We had a great comment here on on Facebook Live. Ivon, she says, "Very lost. Great info." Yes, totally. And I And also, I'm sorry. I do talk fast.

So, sorry, Ivon. So, I tell you guys, I'm going to relisten to this. So, don't feel bad. Admit to it. I'm sure the DME in a few weeks, you say, "Guys, I watch that show a few times. Listen to it." I would encourage you to because I'm going to do it because there is so much information and Mary has a youth of knowledge. Just imagine the in fact doing this 30 years and you imagine what your knowledge would be. It's second nature, right? Um so if you ever want me to come speak at your conference, you know, you can always just ask. Absolutely. Absolutely. I love to teach stuff. So for sure we're set for this year, but I I couldn't do it this year anyway.

For sure. Okay. If you're interested. Little plug. Absolutely. I do see some more comments on uh YouTube. I appreciate the comments. I would ask you there's some more direct questions for Mary. Please use the billy link and ask her directly that those questions um before we go crazy. I would say that most people from what your experience is are using trusts right or wrong. What would your experience would be? Uh it depends on whether they've had an attorney involved. And I'm not practicing so I'm not plugging attorneys for my sake. I'm I'm saying literally these things are not always intuitive.

We don't we're not taught this stuff in school. Um, there are even non- attorneys who are the gurus out there that I've heard teach the wrong things. Um, so I would just say at least when you start learning them, work with an attorney to know how to do it right. Um, because I I've seen great trusts and I've seen some really really bad trusts. Really bad. So, name one thing that's a bad trust and what kind of attorney should I be looking for if I want to hire one? Yeah. So, what's what's one thing that's bad? Well, I'll give you one example. Um, I I was a lender many years ago now on a deal where the borrower was trying to do this through a land trust.

They were trying to own the property and borrow through a land trust. And we could not understand why the closing attorney was not getting the closing done. He kept pushing it and pushing it and pushing it. And finally, I said to the borrower, I said, "I I don't think this attorney knows." So, let me get rid of that. I don't think this attorney knows what um a land trust is. There's no reason to keep delaying this. Sorry, I've got my son keeps trying to call me. Anyway, um you talk about kids, right? This is an adult child. They still interrupt you all day. Um but anyway, uh I ended up calling that attorney to find out what the problem was and he had rewritten the entire trust to send back to the borrower and it was horrible.

He was a real estate closing trust. He tried to make it irrevocable. He did all these things. I'm like, "No, no, no. He's done some research and asked what a creditor protected trust is like an irrevocable trust like we talked about. Tried to make it that. I had to explain exactly what a land trust was. Send him a copy of one and then he was like, "Oh, we can close tomorrow." I'm like, "Why didn't you just admit that and stop pushing it off?" So, I think that people were not taught this, like I said. So, there's no intuitive understanding about trust. You have to learn and you need to learn from people from lawyers, I think, who understand trust.

Uh, your first bet is a good trust and estate attorney, but I will say that there are some of them who understand great trust for all the estate planning things, but have no idea what a land trust or paper. Correct. Yeah. If we go to our will and testimony and we signed like my wife and I did years ago and I say, "What's a land trust?" Like, I don't know. Like, yeah. So, that and that's a situation where like I often get called in to consult because I have to kind of explain it to the lawyer um because they're just not familiar with it. So, if you go to a closing attorney, um, they probably don't know what a trust is or don't know how to draft a trust unless they've already been taught that.

So, I know that Dykes, who's no longer with us, he had a great land trust course. I don't know if you can buy uh any of those materials. I don't think so, but you could check out his website at assets101.com and see if it's there. He we did lose him last year, sadly. He died. Um, amazing teacher, an amazing man. But in any event, I would just try to learn everything you can about trust. But you've got to know what type of trust you're trying to do to make sure you're learning about the right type of trust. That's why I think it's best, at least initially, to talk to an attorney. Try to find one who understands the space you're in and what you're trying to do.

Got just Google real estate trust attorney, I guess, is what they're called. Yeah. I mean, there are some big houses out there like Anderson Advisors and other people that I I'd be careful with some of the trust mills. Y um there are people who are promoting promoting things that have been and not Anderson, I'm not saying Anderson, but there are other people who are promoting types of trust that the IRS is definitely targeting as an abusive tax avoidance scheme, tax evasion scheme. Um you're allowed to avoid taxes legally. You just can't evade them, you know. So, so just real quick for those who don't know a mill, that just means a really big company.

You're just a number in it. So, just Yeah. And they just pop out the same document for everybody regardless of those personal circumstances. And I don't have any names. I'm not wouldn't give the names anyway, but just be careful. Ask a lot of questions. What's their experience with that particular type of situation that you're trying to do a trust for, you know? Yeah. So, we need a question from Jonathan over on Facebook. Is some trust have directors. What are some of the other roles that are out there that some trust may have? Sure. So, the director we see in two different contexts most often remember we talked about these irrevocable trusts for um creditor protective purposes.

We can't change those once we set them up short of a court order. Um, the trustee has a fiduciary duty and is responsible for doing certain things. But what if all of a sudden that trustee goes rogue, right? We might have put in that trust document something called a trust director and given that trust director certain powers that aren't trustee powers. One of them can be the power to remove and replace a trustee. Okay? Right. One of them can be the power to tell the trustee to withhold a distribution if a beneficiary is on drugs for instance or in the middle of a divorce or pick your pick your topic.

Right? So um a a trust director um can be used in the irrevocable trust like that. We also see directors in land trust or paper trust where we've got multiple beneficiaries but you want one person who's responsible for directing the trustee what their actions are. So depends people throw around different terms in different circumstances but those are the two that come to mind about direct um I know I see another question about you know what are different actions a trust can participant can take pledge assign revoke direct is there a lot of them or a lot of different options sure sure so it all depends first on what the trust document says what powers has it granted to the trustee most of them will say something like you have all the powers under the you North Carolina trust code blah blah blah including to including but not limited to and then spits out three or four pages worth of powers.

So everything is governed first by the trust document and if there's something the trust document is silent on then you have to look to state law to see what the trustee is allowed to do. Okay. And then I'll end with this last question and has his is uh is it good to have a bank as a trustee? Oh that's a loaded question. There are pros and cons to it. I have had really bad experiences as a lawyer with banks as trustees where they're just big corporate entities and they're not paying attention to the needs of the beneficiaries. Um most of this has been in the estate planning trust world, not the land trust world.

We don't see banks as land trust trustees very often if at all. But um you know where they just we've got a guy who's the sole beneficiary of a multi-million dollar trust and he was living almost homeless because the trustee would only send him like $80 a week. Oh, wow. We had to We spent three years in a lawsuit getting that uh bank trustee fired. He was the only relative, only living relative. There was nobody else that was needed this money and he was really hurting. Yeah. I would think you'd want to name someone you know and you have relationship with to do it. So, yes. Yes, that can be good.

You've got to be careful because what if they're not sophisticated? So I have seen trust documents where you've named maybe a bank and a person and either they either have to act together or the bank has certain um actions like they can be the investment trustee to manage the investments but the family member or friend can be the trustee who makes decisions about the distributions beneficiary. Okay, you can set these things up a lot of ways. I'm sure there are really great trust companies and banks, but you just have I would ask a lot of hard questions before I named a bank. Awesome. And I put them in when we run out of alternates.

Like, you know, I'm convinced my clients, put in one trustee, an alternate, a second, a third, a fourth. Some point they can't figure out anybody. Well, put in a trust company or a bank. Yeah. Sure. We do that for our kids. You know, who gives our kids something happened to us? We name six people, you know, kind of thing, right? Yeah. I'll let Nathan finish it off. It was a really great day for me the day my youngest turned 18 because for years as an estate plan attorney I stressed over the guardians so hard I changed so a million times you know depending on who you're hanging out with at the time and all you see yeah we are we are just in the middle of that like today in fact we were opening that email reviewing documents and everything our youngest is 15 so we've got just few more years yeah my youngest is 25 and his his brothers are a little bit older so I was like yep you guys get your baby brother as soon as he, you know, was a kid.

But once he turned 18, I was like, "Hey, you guys are on your own time." But if not, you're on your own. Wings, off you go. Well, that's been fascinating, Mary. Thank you very much for coming on and sharing. You're welcome. It's a It's a lot of information. I literally teach this stuff for two days. I'm sure. We're trying to fit in a lot in an hour. So, I know overwhelming drinking from the fire hose, right? You know. Yeah. Yeah. Definitely. I've got you on the list for next year's DME. So, we're we'll we'll talk more about that. But that's sounds good. Well, thanks for having me. I really appreciate it.

Thanks for everybody who tuned in to listen. It's a it's a dry topic, but it's interesting if you really get into it. Yeah. So, we always like to kind of get perspective of the people that we we bring on here. I mean, you've been doing a lot for the last 30 years and and now you're doing uh private lending. What kind of private lending, by the way? Like for like fix and flip, that kind of thing or? Yeah, mostly. So for 21 years, I just did that just myself as a hobby. I never advertised it or anything. And then last year, I realized I had originated over $7 million in single family flips. Okay.

By myself in an Excel spreadsheet, okay? Like, you know what? I think I'm going to grow this thing. And so I my biggest borrower was is a contractor out of Richmond, Virginia. I brought her on as my right-hand gal. We've just brought on another person to handle operations and marketing. We just set up the company at the end of last year, Fair Oaks Funding. And yeah, so we're just we're go we're going we're going. It's fun kind of fun to do it with other people instead of all by myself. But mostly right now we're fix and flips. Although we're talking to about uh three other people for either light industrial subdivision developments or um uh like flex warehouse space type things.

So we probably will get into some light commercial at some point. Yeah. And development ground. We do some groundup construction. But the bread and butter is the you know six to eight month fix and flips. Okay. So we like to get people's perspective on what do you see coming down the pipe in the next what do you see for real estate what's the temperature bullish so so much depends on your market right where you are I mean so you know I see some places like I know a lot of people in Florida are struggling then there are places like you know Asheville North Carolina where I am and these houses are ridiculously expensive and flying off the shelf um Richmond Virginia where it's pockets you know certain neighborhoods seem to have started to tank bank even nice neighborhoods and the other ones are still super strong and people are selling those houses within 36 hours of being on market.

So I think it really just depends on where you are. I mean people are always going to need housing, right? Yeah. And the question is just how much can you sell it for? And that depends on a lot of factors like interest rate and market and demand and supply and all that. So yeah, I don't know. So know your neighborhoods. Yeah. In terms of the lending, you know, I always think it's going to be a tapped out market. And then I I looked up called, you might know of it, I didn't know of it, the Scotsman Report. Have you heard of the Scotsman Report? I've heard of it, but I haven't looked at it. Yeah.

So, I I found it through the American Association of Private Lenders. They had an article on it. I was reading their newsletter, and it it ranks like the top three or 400 private lenders by volume and number of loans they've done, and I was looking at that going, "Good Lord." I mean, you get down to three or 400 lenders before you're under a hundred million in loans originated every year. I mean, that's I I couldn't believe how and that and that's only the people who submit their data to be considered for inclusion in the list. I think there's probably way more companies that they're not going to bother, you know.

So, I I'm surprised how much need there is for private money. I always think that tap's going to run dry and it just never does. I'm amazed. I'm you know, we asked the private lenders, hey, what are your rates at? And it's funny when I got first got started notes, they were 14 and four back in 2010. They got down to like eight and one in 2015 16. They're back up to 13 and three, 13 and four again. It's that cycle. It's amazing. So yeah, and it it depends partly on what's the regular interest rate. You know, the regular interest rate is so much higher now than it was four years ago or whatever.

Um I see mostly, you know, it's all over the board, but mostly somewhere between 12 and 13 and two to six points. Just depends. Yeah. Yeah. And how experienced they are. Awesome. Well, Mary, it was a pleasure. I hope you enjoy the rest of your Friday and I'm sure I will with the outside weather being so nice out here. Um, thank you so much for spending your time and your knowledge. Um, thank you for having me. Always have a great to have a conversation with you that you're willing to share and be open with all of us to share the things that you learned over the years. It's always honor. uh you came very highly recommended when I reached out to uh a few friends we have in common and I said, "Oh my gosh, I forgot totally that Mary does this.

It's awesome that we had you on here." Um we encourage you those please reach out to Mary. She has a nice new website she got built up and she's doing this on the side kind of thing. He'll be gracious enough to help you out, but we respect her time as well. So hang on for after hours. We're going to disconnect from the live feed and we will see everyone soon. Our next show will be in May since we'll be at the DME for our next time period itself. Thank you everyone for tuning in..