All Forum Posts by: Bob Willis

@Jay Hinrichs - you made me LOL. Do you need the funds to come from zero interest credit cards in order to apply for coaching? :)

For the OP, we don't lend on subto because we don't want to go in 2nd behind a loan that wouldn't be in the borrower's name in the case of a wrap. And we won't do novations because there are heightened risks for a creditor, there, too since the borrower/investor would actually not be on title - they would have legal authority over the property but if for some reason the seller decided to sue and claim they didn't know how those transactions work, our capital could be at risk. For seller financed deals, we don't want to do it unless the borrower is putting up other collateral to cross it with and/or the seller would be willing to go into 2nd position. Sometimes we will do 2nd position behind the seller note as long as it's long term, with low interest/default interest, etc.  

@Bob Willis usually no, since a HML would be in the 2nd position here. I mean, I can't speak for ALL hard money lenders in the US but this is not usually what they are ok with.

I co owned a hard money lending company for 10 years and we would not be willing to be in 2nd position behind an institutional lender. 

That said, I buy sub to property myself and when I need cash to rehab or catch up defaulted loans, I like to bring in private money and make it appealing to that person. Often I will structure a participation note/mortgage.  I will pay the private lender a percentage rate as well as part of the equity in the deal. My investors really like this structure. 

I think the risk of you having a prohibited transaction (extension of credit and not using a nonrecourse loan) is the real issue and not necessarily UBIT.  If this is the case, it would be considered a deemed distribution of your account which could result in adverse tax consequences. 

 Do you report any income on a schedule C?

Yes the leveraged portion of the real estate will trigger UDFI which will cause UBIT.  UBIT scales up to 37% so it can be a hefty tax depending on the numbers.  

Easy math is this:  $100k home.  50% down.  50% financed.  So 50% of the income generated would get hit with UBIT.  So if you made 10k then $5k of it would get taxed.  After expenses are deducted.  

FYI - if you qualify for a Solo 401k (self employed and no employees over 500 hours annually) then you can avoid this tax on leveraged real estate.