Private Money Lending Trust

[Brice Aldrich]

Hello All!

I'm trying to raise capital to do some co-investing with experienced partners. I am new to the game but have done a fair amount of research, networking, and reading around the topic of realestate. I am 21 and have a decent paying software job for Fort Wayne IN, at $60,000 salary. I am able to set back about $33,000 a year out of this salary, but around $18,000 of that goes towards tuition for my wife and I each year. I am disappointed with such slow financial growth, and really want to get out of software and do full-time real estate investing. I imagine I'll have to keep my software gig for several years before I am able to do this.

In the mean time because I am only able to use about $15,000 a year towards realestate I thought of a creative financing plan to fund future partnership deals. The idea is you gather a series of private lenders and you put all of the loaned money in some type of entity. Each lender puts their money in at the same time, and the loan length is 5 years. The max debt I want to take from these lenders is around $80,000 combined, because if something were to fail, I could still make payments at this point. The entity that these lenders put their money in, will in return give them 7% compound interest (not amortized). In a way its kind of like an REIT. My LLC will control the entity that the loaned money is in. The lenders can't call their loans unless I miss payments of course.

My question to you, is if I were to set something like this up, what would the entity type be? Some type of trust? What are the legal consequences if any (I will still ask an attorney, don't worry)? 

[Nick Sabat]

Seems like a lot of work!

First, you have to convince several lenders or more, to join in on what you propose. Not saying that this cannot be done. But, as how you explained it, seems it would be better to go get a conventional loan of some sort and start that way.

Next, why even build a Trust to have people put their money into it, while you can borrow from each individual lender and pay them that way.

Seems you are trying to minimalism your own risk taking and placing it on the lenders. If I can see this, they certainly will. You have mentioned an REIT, why not just handle it that way and tell each individual investor, that they are taking the risk and if the trust fails, they loose money.

Your "Plan" is most important - in this scenario you have painted here, seems it will fail at the door. You are a software developer/student? Then, it seems you can read! My suggestion is you read on this site a little more. See if you can come up with something more viable and reliable.

As far as legal structuring of whatever entity you like - again, come up with a viable business plan first!