Private lender wants to lend, but needs long-term capital gains, what to do?

[Daniel Hart]

My private lender is tired of getting 10% from me because he is a high income earner and with NY taxes he's losing half of what I pay him. He feels he nets closer to 5% with me. He is willing to be creative in any legal way necessary in order to receive his income from me as a long term gain. He is willing to lend a lot more money, and for a long time, if I can solve this problem. I mainly use his money to hold rentals long term.

Does anyone have any ideas how to accomplish something like this? I prefer not to give away part of the ownership in the properties I'm buying, but it's the only thing I can think of right now..

[Jay Hinrichs]

@Daniel Hart

Do an equity participation loan.. where interest is enough to cover his imputed then give him participation in the upside that can then be characterized as Cap Gain.. I use equity participation Notes very frequently and built a 350 home portfolio doing this.. It was one of my better loan products for small builders and developers.. Made some pretty substantial hits prior to 08 ... would lend small builder say 500k modest interest rate. they would prosecute the plat.. Sell to bigger builder for say 1mil.. and I would get my modest interest rate plus what ever I negotiated on the profit side.. usually 25 to 40% of the ups.. All written into the promissory note.. Not sure how my CFO booked the long term gain the interest of course was taxable short term.

I can send you a copy of one of my custom notes that have my equity participation verbiage in them is you like just e mail me off line.

PS is there anyplace on this site to share those types of docs with the whole community I would be happy to do so.