All Forum Posts by: Perry L.

@Sarah Lam

Please count me too.

@Sarah Lam

Let me guess. The Seller's base is around 2 million including rehab costs. It is a market price if most of properties are in East Oakland. It would be a good deal if they are in West Oakland. Both are war zones. But West Oakland is in progress at a fast pace due to the its proximity to San Francisco and UC Berkeley.

Only a person in your neighborhood can tell you if it is a good deal. This kind of returns don't exist in my neighborhood. But people here are playing a different game called appreciation.

The private lend has to issue you a 1099 for interest he received. Not the other way around. But if you hold title in corporation, the lender is exempt from issuing 1099-int.

Jimmy,

It depends on the deal. If it is a MLS listing, I think you deserve 10% to 20% as a general partner. If it is an off-market deal and you are the finder, then you deserve 20% to 30%. It also depends on the purchase price, hence the range.

Jimmy,

I am in San Francisco. If you need more partners, please let me know. As far as the formula, I think it is fair. What does your friend/partner think?

I used loan broker to service my loans. His wife is also a CPA. I usually split profits with my borrower when the house is sold. For accountants, it would be easier just to category these profits shares as interest income. I am fine with that until the new NIIT (net investment income tax). PWC just issued an opinion about NIIT. They felt that IRS is vague in certain areas. My preference is to treat these as capital gains from the course of trade or business.

Hello, fellow private lenders:

How do you treat the profit split at the back end? My broker said it would be treated as interest income. That means I have to pay additional 3.8% net investment income this year. If I treat it as business income, I would be hurt even more with 15% self employment tax. So what is the best structure for tax purpose?

Thank you all again for your insights. After reviewing all the loan docs, I decided to fund the loan. It is the first time that I am on the second position. I hesitated because the return does not justify the risk- most HML would require 50/50 profit split for a second position. But no deal is perfect. I'll let you know the outcome in six months.

Now the borrow agrees to have personal guarantee, but is there a standard form for personal guarantee?