Hey guys.
In this video, we're going to cover the right type of structure.
for Private lenders like real estate investing.
Private lending is not a one size fits all business.
So you're going to want to learn about
how to structure your private lending activities.
Now, if you want to know more about
how to properly structure all of your real estate investments.
And protect your.
Assets, you can. Register for our free
Tax and Asset Protection Live event at the link below.
All right.
Now let's get started
on what it takes to be a private lender from the entity planning side.
Okay.
So first off,
if you're thinking about
getting involved in private, lending you need to know whether or not
you want to have active income or passive income from your lending activities.
Now, both types of income, there are benefits to to passive income
and there's also minuses to passive income, same with active income.
So depending. On where you're at with your.
Private lending activity, you can actually possibly have a combination of both.
And what what drives that?
Well, what we're looking at when you're becoming a private.
Lender, do you create active versus.
Passive income?
It's really going to come down to the entity that we choose.
So if you want active income from your private lending activity,
then your typical you want to use an entity that's taxed as a corporation.
You want.
To make it an active business so that income that.
You're generating, the interest.
That's coming in.
Here and the points that you're generating off of here,
they're coming into this corporation and then you're paying.
Yourself out a. Salary.
From that.
Corporation. Now, why is this a positive?
Why would you want active income as a as a passive Lent or as a private lender?
Well, because when you set
when you set up your income to be active, then it opens up opportunities
for you for taking certain deductions that would not be available
when the income's passive.
It also allows you then to contribute to a solo 401 k
so you can start putting money aside into a tax.
Deferred or tax free. Retirement plan.
So for private lenders who are looking for the opportunities
to fund retirement plans and they want deductions
that come from running an active business,
then you should be look at structuring your private lending activities
through an entity that's treated as a corporation.
Now, if you want it to be passive. In nature so.
You don't have it as active income, then what I would suggest you do.
Is you create a. Limited liability company.
And if you set up a limited liability company, then the LLC can make
those loans directly out of that, that LLC.
For example, I have a limited liability company set up that holds my cash
in my brokerage account.
Just this last year, I had a friend that came to me
and he needed a bridge loan on a deal that he's putting together.
So I loaned him the money from this limited liability company.
The points and the interest were paid back to the LLC.
That is passive income.
So if I wanted to make it active, I would have set up an entity
that was treated like a corporation.
So that's.
The first thing you need.
To consider as a private lender.
What type of income do you want?
Now the second thing you want to look at, if you're a private lender, you should be
considering what types of loans will you be making.
With your. Private lending activity?
That is, are they going to be straight up interest loans
or are you looking to get something more out of the deal?
That is, do you want to enter into a.
Shared appreciation mortgage?
Because with those types of deals, you can actually make more money
from the loan that you're making because you're going to participate
in the profit when the property is sold.
And so when I'm looking
at that type of income, it may be that I want it bifurcated out.
So if I'm going to do a loan. Where it's a part, what. I'll call.
Sam Shared Appreciation Mortgage. And I have another video on that.
If you haven't, if you're not familiar with the topic,
check out the other video on my channel that talks.
About the shared appreciation mortgage.
But if you're going to do that, maybe you want that interest income flow and pat
on the passive side and maybe you want the SAM money flowing to the active side.
So you could really do is this.
I've worked with private lenders.
Before where we structure them where they have an. LLC set up.
And they have a corporation.
And then when they loan money, so let's say we're loan on this property over here.
The shared appreciation mortgage interest.
Will come back. To the corporation.
And the straight interest will run to the limited liability company
so we can move the income to where it's most effective.
For us. So knowing the types of loans you're putting together.
Are going to be important.
So you structure this business correctly.
Now, the third thing that. I look at, if you're a private lender, is.
Whether or not as a private lender,
you're going to go this alone or you're going to be working up working your loans.
With other. Investors.
So what I mean by that is let's assume that I have a.
Friend here that wants.
To go into the private lending business with me.
In fact, I was just talking to an individual
who told them, hey, I'm going to get more active
in private lending here in 2023 because they see.
A ton of opportunities.
And so what we're going to do is we're going to create.
A limited liability company. Right here.
We're going to set.
Up an LLC, and let's say he puts in $200,000 and I put in $200,000.
So you might say, all right, so then it's a 5050 split.
Here.
On the income that you're generating from your private lending activities.
Well, that's not necessarily the case.
You could actually. Structure your LLC.
To reflect the nature of the activity.
That is,
if I'm the B the one that's working all the deals
and finding the deals, maybe I want to set it up. Where.
The points get paid to me and the interest gets split
between the two of us as members in this limited liability company
because that reflects the economics of the situation.
So when you're working with other people in a private lending type structure
like I've just shown, you don't think that everything has to be split
equally between the two of you.
You can actually.
Draft your LLC operating agreement to provide four different breakdowns.
On the income points.
Get paid this. Way, or maybe the first.
Amount of money that comes in is going to be paid
to member number one and then it's split 5050.
So there's even. More.
More detail we can actually.
Put into there.
So let's say I was doing a loan and it has.
Three different layers.
So maybe on a loan I have points that I'm collecting.
I'm also collecting. Interest.
And I've also got a Sam involved in it.
So here's where.
You could even get even more complicated if you wanted to.
You could state that the points go to this investor.
The interest gets split 5050 and all the SAM money.
Goes over to this investor over here, this member of.
The limited liability company.
And so. I've created.
Multiple structures. Before for people who.
Are private lenders where maybe they even have maybe this is they've got three.
Individuals in there and each.
Of them have their own
concern about how they want to make money from their investment into this company.
So you can what what I call this is my Triple.
LLC breakout.
Structure for private lenders.
So just know that you have options if you're thinking about getting involved
in private lending, this is what you should be looking at.
Now, if you want to make it tax. Free.
So if you want to be a tax free private lender, then
consider using your solo for a1k.
Or you could. Set it up.
Through your self-directed IRA.
So if you're going to do that, I highly.
Encourage you to create a.
Limited liability company to run this activity through.
And do not just do it.
Through your self-directed IRA or your solo.
You want to set up a an LLC that you're the.
Manager of that's. Owned 100%.
Buy this. IRA.
And then what you do is.
You move your money into the LLC and then your LLC.
Will start issuing out the loans.
So going back to those strategies I just shared with you,
everything that I talked about can be done in a.
Tax free or tax deferred environment.
Is well with this type of structure, especially people
who are considering working with you, partnering on deals.
One thing that I've told investors.
Before, if you're using a self-directed IRA and you want a partner.
With someone on doing a flip deal and you want to.
Own part of that in your IRA.
So you set up an LLC with. This other investor.
The investor has.
60. Percent.
You have. 40%.
It's a flip property and you have debt on the property.
Well, if you watch some of my other videos on my channel
where I talk about the problems with self-directed IRAs, that's a problem.
Because you're going to be.
Taxed on that income because there's debt on the property.
Yeah, your IRA will pay tax.
How do you eliminate that will rather than being an investor
into that property, you
you become a lender, you loan them money and you loan it under that.
Shared appreciation mortgage.
Strategy that I have a video on so that now you're getting paid back.
Interest is the way it's classified rather than being an equity owner in the deal.
So there's lots of ways to do that issue.
If you're going to be a private lender.
I think this is important because with what's going on in the market
right now, in 2023, there's going to be huge
opportunities for people to get involved in private lending.
I've seen it before.
After the last downturn that we had in real estate.
And this is going to be. Another opportunity for. You.
Hey, if you want to learn more about this
in detail,
I want to invite you to your tax and asset protection event that we hold.
The links is below.
You can register. For it where myself.
And my partner Toby Mathis, we go into various strategies using LLC.
Corporations.
Land trusts,
residents, trusts to put together deals like I've been showing you here,
owning residential real. Estate, commercial real. Estate.
We've got you covered and then we're going to show you how to reduce your taxes
from the money you're generating from those business activities.
And more importantly, you're going to get your questions answered.
Because I'm bringing my.
Team with me to that event where they'll be. There answering your.
Questions live. Guys, I hope to see you there.