All Forum Posts by: Neil Andrews

@Justin Windham

Most of my savings are in an IRA and so are already tax deferred. But I did just inherit some money and plan to use that in a hard money lending capacity. But since I am earning interest on money I am loaning out, I'm don't see how that I can do that and shelter the interest payments received from taxation.

I appreciate all the replies to my original question. I have been doing some hard money lending with just the one guy that I met at the gym. I decided to keep things simple and just use a HELOC as my source money. That way, I don't have to deal with a solo IRA. I just kept that money with an on-line broker and use it to invest in stocks. Using the HELOC has worked well. I have done about 7 deals with him so far, counting one that should finish up within the next few weeks. I borrow from my HELOC only when needed at the current rate of 6% (when I first started the rate was 3.75%) and loan it to the borrower at 12%. He pays me interest only until the deal in done, then pays off the loan in a lump sum. I use his interest payments to pay down my loan immediately as much as possible so I effectively get better than 6% return on the bank's money.

I always look at the property and make sure I am comfortable with the price and estimated rehab costs before agreeing to make the loan. There was one that I did not go in on because of a major basement wall repair that was needed and thought that their estimate for repair was too low.

I recently inherited some additional money and plan to use some of that to increase the amount available for me to loan. The nice thing about that is, if I can keep it invested, I will make the full 12% on that part of the loan.

The REI that I am working with gave up his medical sales job a year and a half ago and is doing his real estate business full time and doing well.

I am new to real estate investment and plan to start out as a private lender. I just closed on a HELOC on my private residence. The interest rate is currently 4%. I plan to loan money to established successful real estate investors at about 12%. I am concerned about the taxes involved. Will I have to pay FICA self employment taxes on my profits in addition to income taxes? Can that be avoided by setting up an LLC or S-corp? Do I even have to set up an official business entity to loan money to someone I know? My chiropractor does some real estate investing and he said that if you buy and sell a property in less than 24 months, you do have to pay FICA tax on the profits. In my case, I will just be funding the deals so I don't know if the FICA tax rules apply in that case.

My HELOC is only $100,000 which should be enough to fund a deal in my area. I eventually plan to transfer my 401K into a self directed account and use that to fund deals as well.

Kevin Moen, 

I looked at your profile and your website. Investing in notes is something I may be interested in. It seems similar, in some ways, to a REIT, only that a note is tied to a single property. What is the advantage of a note over a REIT?

I met with a the REI for lunch today. We had a good 2 hour discussion. I left a good impression on me. He gave me copies of his standard private lending agreement, mortgage contract, and details on 2 of the deals he has done . He currently has 3 deals in the works, 2 flips, and one he plans to hold as a rental. He gave me the names of his CPA and 2 real estate attorneys he uses and the name of another person he has mentored. He had another business venture (streaming High school sports on the internet) with 2 partners several years ago where one of the partners (the software writer) did not hold up his end of the bargain and they had to file for bankruptcy. They had a buyer of the business, but the buyer wanted to cut out the software guy from the business and keep the other two on as consultants. The software guy refused the deal, so everyone lost out.

He told me that in the state of Kansas, you cannot lend private money or solicit for private money to strangers. There must be an on-going relationship between the two people before any deals can be struck. He said that, at a minimum, you have to have met together 3 times a month to establish a relationship before any specific money lending discussions can even take place.

He has a partner who is a cardiologist that provides some capitol and advice. But the guy I talked with does the rest of the work for the mot part. He is not a full time REI yet. His goal is to be full time by next spring. His other job is selling medical equipment. He recently changed jobs to a different company that pays less, but also requires less time, leaving him more time for the real estate business. He has been doing entrepreneurial projects since he was a kid, first lawn mowing, then started raising hogs when he was 14.

Thank you everyone for your replies. They have been very helpful. In answer to John Chin, I plan to stick to local projects for now. It sounds like there will be no shortage of opportunities in doing so.

Finding the right CPA and/or Attorney who knows Kansas Real Estate law needs to be near the top of my to do list.

I have just decided to get into real estate investing .

I am a retired engineer, 37 years at Boeing. I thought that acting as a private lender would be a good place to start. I have high six figures in saving currently invested in a 401-K that I can tap into to lend. I also own my own home free and clear that I thought I could get a HELOC on for use in private lending.

My plan is to set up an S-corp, create a solo 401-K and transfer my 401-K money into that. I have already met 2 potential investors that could be future clients, but have not vetted them yet. One, I think is pretty new to the industry and is a part of Fortune Builders (Than Merrill). The second is a guy, I just met at the gym who has been doing it for 15 years. We are planning to get together for lunch next week.

Do you have any comments about my beginnings of a plan? Is an S-corp the right way to go? Or would an LLC be better? Are there any other important first steps that I am missing? What is you personal opinion of Than Merrill's Fortune Builders? Is it reasonable to trust that people in that system know what they are doing at least to some degree? I plan to bring a list of questions to the lunch next week. What questions you ask a prospective REI when considering a new client?

Thanks for any help or advice you are willing to provide.

I am a retired engineer, 37 years with Boeing. I have considered real estate investing off and on for years. Now that I am retired, I have the time to devote enough time to it to do it right, hopefully. I have money, currently invested in the stock market, that I would like to use as a private money lender with experienced RE investors. My personal residence is owned free and clear and is another source of money to invest through the use of a HELOC. My plan is to learn use the finance experience and relationships I build through them to learn how to do wholesaling and rehab methods and start doing deals myself.