How to structure to be a private lender

[Daniel Halsted]

I recently opened an EQRP solo 401K and it was suggested that I look into using the funds in the account for private lending.  I'm familiar with private lending just not being a private lender, is anyone else using a solo 401k for this?  if so, how are you structured to keep transactions in and out of the account separate from showing as a contribution or withdraw?

[Beth Johnson]

@Daniel Halsted

He means as a pooled mortgage fund participant. Similar to an LP in a syndication but geared towards being the lender/creditor and not an equity partner. These are typically offered by hard money lenders and private placement fund managers. Pros are having it diversified and capital deployed constantly while earning monthly or quarterly distributions. You also get the benefit of having someone educated and experienced help source, underwrite and fund the deals on your behalf. Downside is you must be an accredited investor to participate in most funds (even if you are using retirement plan funds), minimum threshold for capital is typically a couple hundred thousand (in my market, at least) and minimum number of years to keep money in funds. Finding your own deals and funding then individually gives you more autonomy and control if the loan doesn't perform but there can be lags in between each deal, which would reduce your overall return. However, I've found I can typically get higher rates on my own than through a fund so slightly diminished returns were still better than some average fund preferred return precentages.