All Forum Posts by: Mike Hartzog

Agreed, but I would say rate is far more important than term.  For example, if an investor buys a 9.9% 30 year note, he can collect payments on if for a few years and sell it at par because the rate is in the yield range that private investors are looking for.  My point is, that if the rate is right, the investor can get out of the deal at any time by simply selling the note, and selling the note in that case achieves the same thing as a balloon, i.e., a full payoff.  

In my experience, it's more about doing the bookkeeping properly and not so much the CPA.  From a tax perspective, notes with their total lack of tax advantages are far more simple than real estate.

You would need the underwriters to approve the down payment loan. Typically banks want you to have skin in the game so want to see the down payment money coming out of your pocket, so chances are they will not approve it.

If they do approve it, the bank will insist that the their loan be in 1st position.  The title company will take care of the recording at closing.

Another point here is that the amount paid to cover tax is added to the loan account as an “advance” and accrues interest at the loan rate.

A good partial sale contract will define what happens in the event of default, foreclosure.  Typically the loan will be assigned to the buyer and at the end of the term,  assigned back to the seller.  In the event of foreclosure or early payoff,  the proceeds are split between buyer and seller based on the amount still owed to the buyer.

Thats a good point.  I use a simple promissory note for the loans I have done to entities where I am a member.  I have another member sign off on it.

Disclaimer: I am not a tax expert.

My understanding, having done this kind of thing in the past: The LLC is a separate legal entity from you personally because it is multi-member. If you loan money to the entity which is not paid back, you have the same ability to write it off as you would if you were not a member.

Best Practices: To demonstrate that separation you should treat the entity as entirely separate in all your dealings with it, same as you would if you were not a member.  I would not be allowing the entity to use your credit card directly.  Best to get a cash advance and write the entity a check. Also, the entity should account for the loan in the books as a liability. All funds that pass from you to the entity should be accounted for either as a loan (liability on the entity books) or a equity contribution (your equity account).

@Paul Murch - I am not an expert when it comes to junior liens, especially when it comes to their treatment in BK cases.  On the other hand, @Bill McCafferty  is definitely an expert.  Personally I would be taking his advice here.  

@Jay Hinrichs - 😁 hope all is going well for you.

Unless you are planning to pursue the debtor personally to collect the debt, I would sell the note if you have an opportunity to do so.  An unsecured underwater second position with the first foreclosing is not the best position to be in as an investor. 

Notable Capital Fund (@Joshua Andrews, @Bob Malecki) make partial loans available for purchase from time to time. I would suggest reaching out to them.