00:00:00:00 – 00:00:28:01
Unknown
Here’s what the biggest mistake I’ve seen is. People lend money and on a real estate deal and it’s even secured. But they rely on the borrower to record the way they rely on the borrower to record the mortgage or deed of trust. Now, the number one tip I would have to avoid that is you want to really understand the power of the tax savings in this and that, tax free growth or tax deferred growth and, getting the highest rate of return and not doing risky investments.
00:00:28:01 – 00:00:49:07
Unknown
This is not a risky thing when you do it right. And it’s probably one of the easier real estate investments we’re here to talk about. One of the cool things you can do with the self-directed IRA, which is private money lending your IRA can be the bank and lend other people money on their real estate deals, or their business deals are opportunities, and you get all the interest in points from being out.
00:00:49:07 – 00:01:04:22
Unknown
Be in the bank. Yeah. And you can really stick it to those borrowers. You know, if you if you’re if you’re sick, a bank sticking it to you, this is your chance to get back. And yeah. So when your brother in law calls you up and says, hey, will you love me some money for this idea of mine, you’re like, sure, that’s good.
00:01:04:22 – 00:01:30:01
Unknown
It’s going to cost you 12% interest in two points. And they’ll be like, what’s that mean? It means bend over. Yeah. So, you know, if you can’t beat them, join them. Yeah. Yeah that’s right. Oh my gosh. When you can get such a great rate of return in your. Yeah. And this is really a popular strategy a lot of people are familiar with hard money lending a private money lenders who will lend money on real estate deals or other types of transactions that typically a bank won’t lend on.
00:01:30:03 – 00:01:48:21
Unknown
This is a great opportunity because you can use your IRA to do this. And so this is part of a longer series. So if you don’t know what a self-directed IRA is, let me just say that for a quick minute here. We’re talking about your IRA that can invest in real estate, private companies, private notes that we’re going to talk about here and hard money lending.
00:01:49:02 – 00:02:12:21
Unknown
You’re not doing that at fidelity or at Charles Schwab, okay? They’re broker dealers. Those are broker dealer IRA’s. What we’re talking about is a self-directed IRA, and it’s what our company directed IRA does. So you just need to move your account from Schwab or Fidelity over to the best self-directed company like ours. And we let you do this, and we have so many videos on this, but we always like to just give a quick summary on these key points of what it is and how to set it up.
00:02:12:21 – 00:02:38:11
Unknown
And then we’re going to get into the meat of this lending strategy that’s so popular. And the next point would be you can do this with any type of retirement account or tax preferred vehicle. Think Roth, think health savings account. Coverdell, which is an education IRA. It could be your 401 K, solo 41K or even a CEP. Anything like that you can all use for the same strategy.
00:02:38:12 – 00:02:54:21
Unknown
So and alls we’re changing is what you can invest in. Yeah, we’re just saying invest in something that you know or think is going to get a greater return. And if you’re like, I don’t know that I trust the stock market right now, or maybe I’m to fully invest in the stock market, but I see some opportunities where I can lend money.
00:02:54:23 – 00:03:07:03
Unknown
Maybe it’s secured on real estate that’s very popular, where I can get a deed of trust on title. We’ll unpack this here and I can get a better return than I think I get in the stock market. This is we’re seeing a lot of excitement a lot of people are doing. It’s even what I do with my own account.
00:03:07:03 – 00:03:30:13
Unknown
Yeah. I was just going to summarize the steps to open an account. But really this is where the rubber meets the road with this strategy, because some people actually loan directly out of their account. But typically people are going to form an LLC to do this. So I think that I’ll summarize this. And then usually what you think matters.
00:03:30:15 – 00:03:49:23
Unknown
So once you decide, hey, I want to self-directed my retirement account, whatever type of account it is, you’re going to have to take it to a liquid cash position at that account or over to fidelity or wherever. Open a new account of the same type here at directed IRA. So you’re going Roth to Roth or IRA to IRA.
00:03:50:04 – 00:04:04:20
Unknown
Open that new account, then move the money over and we help with that. Our team does this for you, by the way. Oh my gosh. Yeah. And then look the call and we’ll do it for you. And I’m simplifying this. We have so many videos on this in this top ten series as well. That’ll be really helpful to you.
00:04:05:00 – 00:04:22:03
Unknown
But just in summary you move that money over your accounts now funded. And on day 3 or 4 you’re off to the races. And that’s brings us to private lending. Like what do you do next? You got your 100 grand sitting there, you got your million sitting there or whatever. And you’re like, hey, I want to loan this.
00:04:22:05 – 00:04:36:13
Unknown
I’ve got this money moved over. What do I do next? Was I don’t know, okay. Somewhere you’re down to anything good. Yeah. No, that was perfect. And I think we want to get into the investment because most people come to a self-directed IRA because they want to make a specific investment, and they’re not able to do that at the broker dealer IRA.
00:04:36:13 – 00:04:55:22
Unknown
They make you buy a broker dealer product. So you come to a self-directed IRA. And now one of the common things is I want to do a private money on. Okay. So let’s talk about the different types of it. The first thing is you have secured and unsecured loans. Now Mark and I are both lawyers here. So the first thing we’re going to say is we like secured loans okay.
00:04:56:00 – 00:05:18:06
Unknown
Unsecured loans are a little risky. There’s some things we can talk about there. But a secured loan is right. I’m lending money on a piece of real estate, and I get a deed of trust on the real estate. I’m lending money to a business that’s going to buy equipment, and I’ve got to lean on the equipment. Okay? There’s some asset behind the loan that protects you as the lender in the event that the borrower defaults, remember, you’re the bank.
00:05:18:06 – 00:05:38:13
Unknown
So you got to think. What would the bank do? Okay, I got to go. You know, I’m another point here too is I want to dispel some myths. Some people think private lending is more risky. It actually could be less risky than what the banks are doing. And then you might say, well, why aren’t the banks doing this?
00:05:38:15 – 00:06:02:23
Unknown
Because private lending requires you to be nimble and fast and move quickly. People that need money in a private lending transaction are like, hey, I’m doing this deal. I need the money now. It doesn’t mean it’s more risky per se, from a potential default, because you’re going to get a lean against that asset, and typically you’re going to get well beyond the security, that you need for the value of the loan.
00:06:03:01 – 00:06:23:03
Unknown
So private lenders are very well positioned. If someone defaults, they’re like, damn, I’ll take that asset. So it’s not that they’re more risky. It’s just you’ve got to know what you’re doing, be able to move quickly. And that’s why you’re outperforming the bank. And so I don’t think we need to think the risky you could make them risky if you’re not smart.
00:06:23:03 – 00:06:44:06
Unknown
Exactly. Yeah. And let’s let’s talk about how do you minimize the risk. And this is where I go back to Wbd. What the bank do is you obviously want to look like let’s say it’s a real estate transaction. Right. Most common if we can get there or, you know, head around that is all right. Who is the borrower if this is a real estate investor, is this their first deal?
00:06:44:12 – 00:06:58:01
Unknown
Is this a good deal? Is the property worth what I’m lending on it? My lending money just for the acquisition? Or maybe this is a rehab project. I’m lending money on the rehab. Has this person done a construction project? Do they have a good credit score? Do I know this? Like, you know what I mean? This is what the bank’s doing.
00:06:58:01 – 00:07:18:14
Unknown
Whether you’re saying to them, this is what you should be doing. All right. Are they using a title company or a closing attorney? You should too. Okay. So you want to kind of go through those things, but now you’re at the bank. Remember you’re like that. You want to make money like the bank, but you don’t want to lose the one thing on private lending that’s interesting, I was talking to a very large private lenders actually run a big private lending fund.
00:07:18:16 – 00:07:36:20
Unknown
And he said, because our returns are limited in the sense that we charge a rate that we don’t make more than we have to make sure we never lose. We can’t lose. If you’re investing in like, start ups or something like that, you can have a company go a thousand X and you could have every other one lose and you still make money.
00:07:36:21 – 00:07:57:04
Unknown
You can invest in ten of them, and nine of them lose, and one makes big money and you can still be ahead. But in private money lending, if you have ten deals, really, if you lose on more than 1 or 2 of those, your principal, you’re upside down. So you want to make sure you’re you’re underwriting these and looking at them at them properly.
00:07:57:04 – 00:08:19:21
Unknown
Yeah. And what I want to be clear again here too, if I’ll add a distinction, is when Matt says you lose, it doesn’t mean you’re going to give a $500,000 loan on a $100,000 property. You would never do that. You want to loan $100,000 on a $500,000 property. So if they default, you don’t lose. You get a property worth more than your loan.
00:08:19:23 – 00:08:40:03
Unknown
Though what Matt’s referring to, I think, is that this potential for loss is that you don’t do the paperwork properly. You miss dotting and I are crossing a T. The property could have been worth more than loan, but because you did the deal wrong, you had that loss. And these big companies, they are sticklers for that that procedure.
00:08:40:09 – 00:08:56:16
Unknown
And I think that’s what this person you were talking about was that procedure. We’ve got to adhere to that because that’s where the devil is, is in those details. Yeah. And that’s why you want to be wbd. So just think of that. And, and I think, so let’s go into that. We talked about using a title risk company.
00:08:56:16 – 00:09:14:17
Unknown
I dropped out making sure you have the right documents. You’re going to have a promissory note. Now remember who’s lending the money. It’s not let’s say for me, when I’m lending my IRA, it’s not Matt Sorenson. That’s the lender. It’s direct a trust company. I feel Matt Sorensen’s IRA is the lender. And then we’re sending the money out of your IRA to that borrower.
00:09:14:19 – 00:09:32:02
Unknown
They’re paying back interest in points or the principal when the note is due back to your IRA. This is growing your IRA. What? You want to talk about the tax benefits here separately but just logistics here. Paperwork promissory note. Your IRA is the lender. And then also a deed of trust or mortgage. This is the lean on the title for real estate.
00:09:32:07 – 00:09:54:03
Unknown
This could be a UCC lien on equipment and up if you’re lending to a business. But there’s some security in there that you have on the documents I like. I’m going to pivot. And, this may resonate with some of you listening is let’s also step back and ask, is my IRA going to actually be the lender or this LLC option?
00:09:54:03 – 00:10:18:03
Unknown
Yes, I think at the beginning you should also ask yourself, am I going to be doing a lot of this? I like this strategy. I’m going to become known as a lender. Other real estate investors chit chat. They’re really good networking. So they’re going to go, oh, this guy over here is loaning money and other guy. And so there’s a good chance if you have a successful lending package, you’re going to be doing this over and over again, which is what you want to do.
00:10:18:03 – 00:10:34:12
Unknown
Because think about this. If you’re loaning it 12% plus two points. So they’re going to give you two points or whatever the loan is. So it’s a $100,000 loan. They’re going to give you $2,000 the minute you give them the money. Then every month they’re going to pay you 1%. Well, if they can, they don’t want to pay that every month.
00:10:34:16 – 00:10:55:13
Unknown
So they’re going to hopefully pay you off. That’s why it’s called private lending. Short term hard money lending. Within six months they give you the money back and you’re out doing deal number two. So now if things go well you’re averaging 12 plus two points plus two points because you’re doing this twice a year. So you’re a freaking 16% ROI.
00:10:55:14 – 00:11:10:18
Unknown
So I’ll just finished with this Matt you picked back clean up on this is if I’m going to be doing more of this when I open that account, a directed IRA, I’m going to say, you know what? I want to talk to one of the lawyers. Let’s fund an LLC. Then I can control the checkbook to that LLC.
00:11:10:20 – 00:11:29:16
Unknown
And I could do loans all the time. Still following all the proper paperwork, but I don’t have to call directed IRA every time I want to give a loan. So there’s that fork in the road. Do the loans out of your IRA or do I have an LLC now that’s just in general? Well, yeah. Yeah. And I’ll just say we have a podcast episode and videos on using an IRA.
00:11:29:16 – 00:11:45:00
Unknown
Let’s see. We have a whole page on that. And so but that is kind of a structuring thing of how are you going to self-directed in general depending on the assets you’re going to do. And there’s two different ways to do it. There are like, Q you kind of give a quick little, summary on your options. There.
00:11:45:02 – 00:12:03:22
Unknown
So, so whatever method it is. Yeah, you start with assessing. Yeah. Assessing the deal. Okay. So you obviously, you know, you want to make sure you got a good borrower and I think in any deal there’s like three things I’m looking at an eight. And this could be any investment you’re making at in real estate. Who is the borrower?
00:12:04:03 – 00:12:19:21
Unknown
We’re not talking about when Matt was single and checking out the ladies, I don’t I don’t want to know what those three things were, but yeah, that’s a different list. All right. So is it a good property. All right okay. So the properties at issue. And if you’re lending or buying it’s the same thing. You got to have a good property.
00:12:19:23 – 00:12:36:03
Unknown
Is there a good operator. That person that you’re lending the money to. Are they a good borrower okay. Do they know what they’re doing? Do you trust them? And then the third thing is, is what’s their strategy on the property? Are they buying and holding this? Are they rehabbing and flipping it? Is this a short term thing or a long term thing?
00:12:36:07 – 00:12:53:10
Unknown
Seem to understand kind of their investment strategy when you’re operating as the lender? I like you bring that up. Some people will go, well, I don’t care what the hell they’re doing. That’s a good lender and that’s a good property. Yeah. But as you do this more, you kind of start to see people have fails in in good experiences.
00:12:53:10 – 00:13:09:22
Unknown
And when you see someone that a train wreck coming, you don’t want to be a part of that. And and so I think it’s important to understand their strategy just so you can go. No, that’s a dumb strategy. You may be you may have great credit, you may be a great guy. And this property is worth more than the loan.
00:13:10:03 – 00:13:27:16
Unknown
But I see what you’re trying to do and I don’t want to come along for that. Crazy. Exactly. Like like, for example, you know, you can have a good borrower, you could have a good property, but maybe their strategy is to fix and flip the property. And have they done that before? Is that market right Prime for that.
00:13:27:18 – 00:13:44:12
Unknown
Did the contractor they picked. There’s a little bit of risk that that contractor could be over time and over budget that happens. But you know at our self-directed IRA summit, we had Amy McCoy on. She’s been great. She’s been in our events and spoken on our podcast before. And she’s yeah, we’re on HGTV and all that. And she’s done a lot of real estate deals.
00:13:44:12 – 00:14:00:10
Unknown
She teaches people how to raise private money. One of the things she talked about is she as an investor herself, or when she’s lending money on deals, she wants to know, do you have multiple exit strategies, like if this is a fix and flip property and you can’t sell it for the price you think you can, can you hold it as a rental?
00:14:00:16 – 00:14:29:13
Unknown
Well, let cash flow enough to pay the loan and and the cost of the loan. And a good investor, someone you’re lending money to, is going to have a couple strategies on the property. They don’t just have one exit strategy. And this matters to you because your money is on the line here as a private money lender. So having a little bit of perspective on that and understanding what is the strategy on the property is there may be a fallback or plan B exit strategy can make it a lot more safe for you and eliminate risks that you might have.
00:14:29:15 – 00:14:48:18
Unknown
Well, let me, I’d love that and let me throw out another thought. So let’s say we go through those three factors. Three criteria I’m going to assess at the beginning the lending package. I don’t know if I want to be the one to tell you what that lending package should look like. We’re trying to give you an overview of there’s going to be a note.
00:14:48:22 – 00:15:05:01
Unknown
There’s going to be a security instrument. It could look different depending on the asset you’re trying to secure. You may even be asking for a personal guarantee from the lender. The borrower. Yeah. If they if they’re you know, you’re lending to their LLC that pretty much owns nothing. Yeah. They’re like I want asset protection. You’re like, I want your butt on the line, right?
00:15:05:04 – 00:15:30:05
Unknown
Yeah. With the bank to the bank. Does that when they lend to a business and totally. And then you’re also going to be asking, I had someone ask me today, are you going to get a lender’s policy is on real estate. Are you going to do a UCC three filing. Is it equipment. So there’s what we don’t want you to rely on us to tell you what that lending package should look like on that loan in your state, on that asset and that dollar amount.
00:15:30:07 – 00:15:53:03
Unknown
But we do know that it’s it’s super common to have a good clean lending package that you can use over and over again. You’re going to learn from lending experts like Amy, who was in our event, we’re using an attorney or a title office that works with investors regularly. Yeah. So don’t feel like you’re on an island, but also don’t feel like we’re your get all into all.
00:15:53:03 – 00:16:17:01
Unknown
I don’t want to I don’t want that responsibility. Yeah, I’m just saying I’m lending. Patty and I have a couple loans out right now. I know you’re lending. Yeah, I I’m also a borrower, and so I’m on these transactions. But if you’re going to do this regularly, you really want to have a, coach or, advisor that’s guiding you through this, or you really put in the time to do it, right?
00:16:17:06 – 00:16:34:11
Unknown
Yeah. And I think if like anything, the first time you do it, the learning curves a little harder, right? But once you start doing it like my first deal I did where I lent money from my own retirement account to someone else on a real estate deal. I had a lot more questions, but the next time I did it, I had less and less and less and less.
00:16:34:11 – 00:16:51:16
Unknown
And then you get in a rhythm of, all right, this is how it works. This is what I need. This is what’s going to happen at Tile Rascal. Let’s go over a couple of things that people do wrong though. And this is educational guys. This is not our legal advice or anything right here. Get to our law firm if you need that calculus lawyers, get to the persons that you know and trust in your community.
00:16:51:16 – 00:17:13:00
Unknown
Make sure you’re using the title risk Attorneys. But here’s the I want to give a one tip I like. I’d say it’s legal advice, just not to you. So take this. Yeah yeah yeah I mean we are lawyers here, but yeah, we’re generally trying to give you educational and playing around. Yeah. Yeah. And the podcast. Okay. Here’s what the biggest mistake I’ve seen is people lend money and on a real estate deal and it’s even secured.
00:17:13:05 – 00:17:30:12
Unknown
But they rely on the borrower to record the lean. They rely on the borrower to record the mortgage or deed of trust. Now you decide how you want to structure the deal. When you have a self-directed IRA, the IRA company’s not telling you what to do. Whether you’re using directed IRA or anyone else, this is you. You’re in charge of the account.
00:17:30:12 – 00:17:47:12
Unknown
You determine the terms and the rate you’re going to charge and who you’re going to lend the money to. You tell us what to process. So now the number one tip I would have to avoid that is use a title company or an escrow company or closing attorney. If you’re in a state that has closing attorneys, don’t try to do this on your own.
00:17:47:17 – 00:18:09:02
Unknown
And also if you’re thinking, well, that probably costs money. Yeah, that the borrower you’re charged the borrower for. When the bank lend you money, the bank makes you use a title or escrow company or closing attorney. And who pays for that? You do the borrower. All right. So you got to think through that. Any good private money lender is going to do that.
00:18:09:02 – 00:18:23:07
Unknown
Yeah I’m going to go over this is good. I like where you went with this because I’ve got 2 or 3 files. I’ll yeah, I’ll share one. I did. But oh you want to add to that? I was just going to say the last thing is, is we’ve seen people lose money that they’re like, well, that the mortgage or deed of trust didn’t get recorded.
00:18:23:09 – 00:18:50:19
Unknown
I signed it, they said that or they signed it, but it was on the borrower to record it. What interest did they have to make sure it gets recorded? It’s again, they don’t record it. Anything worth anything? Yeah. So okay. Pivoting another one. This happened to me over 20 years ago. Is you get it recorded. But come to find out, there was other people in front of you, and I was.
00:18:50:21 – 00:19:16:16
Unknown
And there might be two tips here. One is I was relying on someone to do the due diligence for me, and said that they had got confirmed that the title was clean and that there was no first or second. And so I trusted them. That’s a point in and of itself. Be careful who you trust. If you’re not doing the due diligence yourself, even if you’re going to a title company, make sure you’re understanding what they’re sending you.
00:19:16:18 – 00:19:42:05
Unknown
And then number two, the biggest mistake there was realizing I’m in third position. The property was worth $1 million. But holy crap, there was two other loans in front of me. By the time my loan got recorded, all that equity was gone. And so, it was a nightmare. But I was mad at the person I trusted and then mad at myself for trusting them and then learned, oh, maybe I don’t want to be in third position and that can happen.
00:19:42:07 – 00:20:04:03
Unknown
Yeah, yeah. Like, and what happens by the way, is if, let’s say that first or second position mortgagee or deed of trust has to foreclose, you get wiped out. If you’re behind them, your lean is gone. Okay. So you the the let’s say the second foreclosed, you know, the first gets paid off because they’re ahead of them. But everyone after this is like senior junior.
00:20:04:03 – 00:20:25:04
Unknown
You want to be senior, you want to be as up as me first. You’re not first or last. All right, that’s private lending. And in NASCAR racing. That’s true. Yeah. Oh, good. Yeah. Good point. Ricky. Ricky. Bobby. Ricky. Bobby. So many life principles. Yeah, yeah, he really figured life out, baby. Yeah, baby. Jeez. Okay, I’ve got another one.
00:20:25:04 – 00:20:44:15
Unknown
Yeah. May I, it is mailbox money, but it’s not mailbox money. Now, here’s what I mean. Okay? A lot of people are like, oh, I’m going to do hard money. It’s so easy. It’s turnkey. It’s mailbox money. They do the loan and they just forget about it. They don’t realize you got to stay on top of this.
00:20:44:15 – 00:21:05:13
Unknown
You you just can’t assume this is all going to work out wonderfully. Are you getting your payments when you’re supposed to? Because if you’re not, that could be an indication. There’s, you know, something stinks in Denmark and there could be a train wreck coming. You’ve got to stay on top of this. There is no investment or should be I turnkey to the point where I can just go off and sip margaritas on an island somewhere and forget about it.
00:21:05:18 – 00:21:24:07
Unknown
I get nervous about that. And the clients that I’ve had come to me with this. I’m sure you’ve had this to. They’ll come and go. Yeah, they stopped paying the loan three months ago. Like, why were you here two months and 28 days ago? What? Yeah. You wait. You’re waiting till now to tell me three months later. That’s not when you deal with this.
00:21:24:11 – 00:21:43:15
Unknown
And I always want to break. Did you just discover this or you thought it would get better? So stay on top of this. When you make a loan. And the minute they’re not complying with the terms you’re white on rice. You got you’ve got to take your role seriously. And so don’t think this is just mailbox money. I can turn off my brain.
00:21:43:21 – 00:22:00:10
Unknown
That’s I do not agree with that. Yeah. Great. Great point. Let’s jump into terms here. Okay. I want to discuss what are the terms that I can get in the note. Let’s start with the very first thing of like, why are people who’ve been doing this don’t borrow from Matt Hill. Stick it to yourself. Yeah. Nail those terms down there.
00:22:00:11 – 00:22:19:07
Unknown
Okay. Here’s this is the important thing of the terms in the note. You want to get a higher rate of return than you can get in the stock market okay. And that’s why a lot of people been attracted to private money lending. And who knows where the stock market’s going to go that you’re kind of guesstimating there. But let’s say I can get 12% interest and two points when I lend someone money.
00:22:19:07 – 00:22:40:09
Unknown
That’s what I’m charging right now. We see a lot of other private lenders charging that maybe you’re getting 10% and 1.14% and no points. Okay, but let’s saying it 12% interest. That means I loan 100 grand. They’re going to pay me $12,000 and two points. That means I get $2,000. Two points is that is a charge 1% okay for 1.2% for two points.
00:22:40:11 – 00:23:04:21
Unknown
So I’m really getting $14,000 by charging over. If I held that loan over a year. When I lend that money. Okay, I got another way to kind of two. I, like you said, when you’re doing this so you can make more than you would in the stock market, put yourself on the other side of the table. The borrower is willing to pay more than they would pay a bank, because if so, you’re okay asking for more than they would get at the bank.
00:23:05:02 – 00:23:22:22
Unknown
Because if they were to go, well, the bank’s only charging this. They’ll go to the bank. Yeah, yeah, yeah. You’re here. So I’m going to charge you more and that’s okay. Yeah. And I and I shot a video with one of the persons I lent money to on a real estate deal. Natalie and, you know, she bought this property that was in disrepair.
00:23:22:23 – 00:23:40:16
Unknown
Now, she was like this hairdresser, real estate investor, contractor loved her. She’s so cool. But that property, she couldn’t get a loan. The mortgage companies like, this needs to be fixed up before will actually land on it. So she had to get a private lender, but she bought it at a significant discount. But the bank didn’t care about the discount.
00:23:40:16 – 00:24:10:02
Unknown
And what the praise value was there. Like, it’s in such a disrepair. We just won’t lend on it. Period. So it didn’t meet traditional lending requirements. Also, she wanted to turn the property in a short term anyways, so a lot of real estate investors will pay the higher points because it’s not worth their time to go through the bank lending process, or they’ve got 30 different properties that they’ve got loans on and they can’t qualify for the typical bank loans, or it’s a short term loan and the banks don’t lend to them on short term real estate deals without a prepayment penalty.
00:24:10:08 – 00:24:34:18
Unknown
So it’s a perfect area for private lenders to do specifically short term loans. You could do long term. We’ll talk about term other length here on terms. But I think just out the front end is the opportunity to grow your retirement account and build it with consistent returns. These are base hits. You know, maybe they’re doubles I don’t know, 12% interest, two points, 10%, one point whatever you’re getting there.
00:24:34:20 – 00:24:46:09
Unknown
And and again, you’re comparing that to the stock market. What you think it will be at. Who knows. But we can really assess that rate of return. And I think that’s the first term I just want to off the table is like that, because it’s the reason why a lot of people are doing this in the first place.
00:24:46:09 – 00:25:10:22
Unknown
Yeah. Now, I think there’s two perspectives on the payments, the monthly payments. Or are you going to do a balloon at the end? Yeah. And the lump sum at the end. Yeah. Lump sum. So the borrower comes in and says, I want to borrow that same hundred grand. I’m going to pay 12 and two, 14%. Typically again you’re going to they’re going to get their two points or 2% upfront and then 1% a month.
00:25:11:00 – 00:25:37:03
Unknown
Yeah. Now if you’re the the borrower, I think most of them are like, I want to pay this all on a lump sum at the end. If you’re the lender, you’re like, I’d like those payments every month. And I think there’s a reason and there’s arguments on both sides of this, but I think it’s most healthy to have those payments monthly because one, it’s a it’s giving you a direct feedback on the success of their project and what they’re doing.
00:25:37:08 – 00:25:59:19
Unknown
If they can’t pay you monthly interest and they’re throwing it all in the end at this lump sum type strategy, I think that puts more risk on the, stress. And I like the monthly payments. I think it keeps you in touch with the person, the project, and I, and it keeps him more engaged and getting done quickly because it’s easy to forget that I’ve got this big lump sum coming.
00:25:59:21 – 00:26:19:14
Unknown
Yeah. What are your thoughts? Yeah. And I think it kind of depends on the deal. Of course. That’s the lawyer. Answer it. That’s. Yeah. But I think if it’s a more long term loan over a year, I’m definitely like, let’s make sure there’s monthly payments. But if it’s less than a year I think it’s common to see it go either way where it’s like, just pay me a lump sum at the end.
00:26:19:16 – 00:26:37:05
Unknown
This is a short term deal. As long as again, you think that that borrower has credibility, there’s a right, right amount of equity in the type of deal safe. Yeah. And so, so I go either way on the short term, but definitely anything over a year be very wary of the lump sum. You can still do it.
00:26:37:05 – 00:26:55:05
Unknown
You know, there’s other factors to consider there. But, now on the payments, since we’re talking about that, there’s a couple ways to do it. One, you could just have them pay the IRA directly. Remember that paying you, you don’t land on the money. That money’s going into your IRA, building up your retirement account, not paying any tax on that one to come back to that here in a second.
00:26:55:07 – 00:27:18:03
Unknown
But the other thing is, you may have a monthly servicer. Let’s say you’re going to do a loan for five years or something on a deal. And I have some clients that do kind of longer term loans on real estate transactions. These are some like commercial deals or things like that. They’re lending to multifamily operators or something where they can’t get long term kind of agency financing, like the Fannie and Freddie.
00:27:18:08 – 00:27:36:19
Unknown
And so they need this kind of bridge financing, and they’ll pay a higher rate here, but it might take them a few years to transition that property, hit occupancy rate requirements, you know, kind of rehab the whole thing to where they can get that long term agency debt. So, but whatever the thing is there, you can hire a loan servicer.
00:27:36:19 – 00:27:55:00
Unknown
They’re not that expensive. FCI is one del Toro. There’s a number of other ones that a lot of private lenders use that will do the loan servicing. They’ll send the invoicing out if a payments late, they chase him down, they charge him the late fee. You want a late fee in your, you know and and a penalty interest also in your note too.
00:27:55:02 – 00:28:13:16
Unknown
So you can hire a loan servicer. And again consider that if it’s more than a year or two in length, you might want to have a loan servicer involved just to make sure the payments are happening. And and the late notices are going out too. I love it, I and I think we could keep talking about documentation in terms and security.
00:28:13:18 – 00:28:39:01
Unknown
And is it it really is. There’s a lot to it and making sure it’s tailored to you and the deal and the borrower and the asset, the taxes, may I? Yes, yes, I guy, that’s the beauty of this is you’re doing it in your retirement account. So interest is tax deferred if it’s a traditional IRA, if it’s a Roth IRA, Roth 400 and K, then it’s tax free.
00:28:39:03 – 00:29:00:10
Unknown
But, no matter what, you’re not paying tax right now. So as you’re doing these loans, that interest is coming back. The points are coming back. They’re going in the LLC or they’re going right into your account and you’re not paying any tax on that. There’s no tax return required by your IRA, or your 400 and K unless the for when kids doing a kind of a valuation 5500 type form.
00:29:00:12 – 00:29:20:14
Unknown
But you’re there’s no tax return required because you’re receiving interest. That’s a beauty and it’s not going on your tax return. So it’s just going to grow. Now if it’s a Roth it’ll come out tax free someday in the future. If it’s a traditional account then you’ll pay tax when you pull it. But it’s just beautiful. Yeah. And there’s no you bet.
00:29:20:14 – 00:29:38:02
Unknown
You know, even if you’re doing lots of short term loans out of your IRA, that’s always just interest in points and exempt from it. And think about this. Okay? I was talking to a private money lender, who started doing it with his IRA, and, I actually was, they interviewed me on their podcast, and we were talking about the IRA.
00:29:38:02 – 00:29:59:06
Unknown
And he loves doing this because here’s why. Hey, this client was on the East Coast in a state. We had about an 8% state income tax. Okay? He had he was 37%. Highest bracket for federal. Remember, when you’re lending money personal for any of you people that are private money lenders personally that is that your ordinary income tax bracket okay.
00:29:59:08 – 00:30:20:22
Unknown
This is not capital gain rates. So he’s at the highest rate 37%. Plus he was paying about 45% in taxes. Okay. Now when he looks at this he’s like, all right Matt, let’s say I lend money and I charge 10% interest. I lend a hundred grand, okay? I charge 10% interest. I make ten k. How much of that do I actually keep?
00:30:21:00 – 00:30:40:08
Unknown
Owe 6500 bucks or no, 5500. Yeah. Okay. His silent partners, the IRS and the state get 4500 bucks for their services in this great business investment. And the risk that they took on this loan. Yeah, they deserve it. Yeah, I think they really helped him out. Yeah. They thought about it. They were there, you know, you know, over there.
00:30:40:09 – 00:30:57:03
Unknown
But he had to cover some government spending. It wasn’t. All right. But here’s why I loved it. With his Roth IRA. He actually does a Roth. So okay. He’s like, you know what if I think of, like, growing and building money and compounding my. Well, yeah. And he lens what I do at 12% interest in two points.
00:30:57:04 – 00:31:12:07
Unknown
Okay. So you turn it twice a year. Yep. Turns it twice a year because these are short term loans is again what I do. So what you’re getting is you get the two points twice a year because you lend it twice because you’re doing six month loans. He’s loan and rehab fix some flippers. Similar to what I’ll work on my calculator.
00:31:12:07 – 00:31:36:11
Unknown
That’s 12 plus two plus plus two 6% six year okay I did that okay. Now remember 45% of this is not going to the state or the IRS. He gets the entire 16%. If he was if 45% was coming off here, he was really going to be making about 9% instead of 16%. Now. Rule of 72. For those who don’t know this, how quickly is that money going to grow?
00:31:36:13 – 00:31:56:21
Unknown
So 72 you take the number 72 and divide it by your rate of return. So let’s say this guy who’s really on it is doing 16% consistently 72 divided by one, six and a half is four and a half years. So his hundred grand becomes 200 grand in four and a half years. No new contributions, just the money.
00:31:56:21 – 00:32:25:14
Unknown
Making money on the money. Making money on the money. Okay. Versus if he did this outside his IRA at 9%. That is eight years. Yeah. So then that’s one right. Yeah. And then the 200 grand in another four and a half years turns into 400. So. And then 400, 800. Let me just say this another way. In 18 years, by the way, lending 100 K at this rate of return, 16% will be $1.6 million.
00:32:25:16 – 00:32:49:13
Unknown
Okay. Lending 100 K here at a 9% rate of return. Where your money doubles, I need to do it four times 32 years. It’ll take me 32 years versus 18 to get to $1.6 million. If you’re 50 years old, do you want this at 68 or do you want this at 82? Okay, that’s a big difference. Yeah. All right.
00:32:49:17 – 00:33:14:07
Unknown
That’s easy math. Easy math. And there’s this, Roth concept, which we have so many videos on as well. And please go listen to those podcasts on the Roth, because that becomes a tax free ATM. And we have clients that we we need to start sending out a package when they turn 59.5 like this, like some sort of like you’re, you’re, you’re you’re here, you’re home, you’re you’re tax free.
00:33:14:07 – 00:33:41:01
Unknown
ATM is now unlocked. Yes, it is. You can go there any time and pull it out. Should send him a key, you know. Yeah. That’s funny. I know like Dave Ramsey does that. You know, it’s your debt free day. We got all this. Your tax free ATM day. But, it’s just so powerful. So you want to really understand the power of the tax savings in this and that, tax free growth or tax deferred growth and, getting the highest rate of return and not doing risky investments.
00:33:41:01 – 00:33:56:05
Unknown
This is not a risky thing when you do it right. And it’s probably one of the easier real estate investments related to it’s a little more passive, you know, and obviously we went through some of the diligence things to think about, to make sure you’re doing good deals and realize you might say no more than you say yes on a deal.
00:33:56:05 – 00:34:13:01
Unknown
That’s okay. So you might need to look at a couple deals before or a few days before you even do one. And the last thing I want to say, if you don’t mind, this is my last comment on not filtering because I always get this question is, well, Matt, where do I find these people that need loans on deals where they’ll pay 12% interest in two points?
00:34:13:03 – 00:34:33:15
Unknown
And I’m like, you need to go to the places where people are doing deals and looking for money. Go to your local real estate club or your local real real estate investors association. We speak at a lot of them. Oh, we just did our self-directed IRA summit in Texas with the Texas. If you’re in Texas, I’m just telling you, go to a Texas Reia event and say, hey, I lend money on real estate deals.
00:34:33:15 – 00:34:51:16
Unknown
12% interest in two points, all land on real estate deals banks won’t fund. You’ll be accosted, and you’re going to have a lot of friends, okay? And that’s how you get deal flow. I just spoke with the Arizona Real Estate Investors Association last month. Same thing. Stand up in that room. A lot of them have kind of a needs and leads type thing where you can network, just go meet people.
00:34:51:21 – 00:35:08:00
Unknown
And what I’ve done is I kind of put the word out there. I wanted to lend on deals, and I’m lending to the same people and over and over again, once that real estate investor that I like that does good deals, sells, that deal, pays me back. What do they do next? Another loan? Yeah. And I lend money on that deal.
00:35:08:00 – 00:35:32:04
Unknown
Okay. And so, so it’s not like you, you know, maybe you’ve got millions or tens of millions of dollars to lend. You might need a little better network, but if we’re talking about hundreds of thousands of dollars, it’s pretty easy to find some deal flow and look at deals by going to those areas. We’re just getting out where the real estate investors are, talk to realtors, talk to brokers, talk to builders, real estate developers, anybody in that real estate community.
00:35:32:04 – 00:35:52:02
Unknown
You start saying you’re willing to loan, they’re they’re going to mention it to the mortgage brokers, too. They’re always coming because they got investors, sometimes a mortgage brokers to work with investors. They can’t fund those deals. You’re like the you’re like their second call. You know when they can’t when they got to deny that loan they say but this there’s a private investor who lends on this type of stuff.
00:35:52:07 – 00:36:12:19
Unknown
My final tip or point is when you start this process and let’s say you go to a couple clubs and you start putting your name out two things on one extreme, please do not do the first deals that comes your way. Do not get so excited that you make it happen. Whenever you feel like you’re forcing it or making it happen, that’s a bad feeling.
00:36:12:21 – 00:36:30:10
Unknown
You want these deals to be easy and they make sense and they feel good. They’ve got to make sense in your mind and feel good in your heart. On the other extreme, I don’t want you to get in analysis paralysis. Holy crap. I’ve also had clients who are like, yeah, I’m going to be doing a deal. When when are you going to pull the trigger?
00:36:30:13 – 00:36:50:06
Unknown
They’re waiting for like, you know, to get 14, you know, 14 or 16 point, you know, four points and 16% interest. Holy crap, don’t be greedy. Don’t wait for the stars to align in a solar eclipse. Let’s just frickin, you know, hit a base hit. You don’t have to get rich off every deal. Yeah, and I think the best advice is, is know who you are.
00:36:50:06 – 00:37:06:15
Unknown
Are you that analysis paralysis person, that engineer you know, that just can’t can’t do a deal because you just can’t get out of your head. You’re like, I just need more training. I need more education or know who you are. Are you that person that runs and guns and does everything? The idea that pops into your head? No.
00:37:06:15 – 00:37:27:04
Unknown
You might need to throttle yourself a little bit and be like, let me look at three deals before I do one. Like the best of the three. Yeah. So just set some parameters for yourself. Know who you are. Know thyself. Yeah. And to thy own self be true. Wow. Wow. Powerful. Well, thanks, everybody for listening. Another wonderful, opportunity to spend some time with you.
00:37:27:04 – 00:37:51:23
Unknown
We love this topic. We love self-direction. The American dream is alive and well. And your retirement account is yours. Okay. Can I say that it is your money. It is your account and it the stockbroker, your banker, whoever is handling your money, they work for you and it is okay to take control, say no and do investments that you believe in and we’ll be here to help you do it.
00:37:52:02 – 00:38:13:16
Unknown
Thanks so much for listening and we’ll see you next week. See you next time. Till then, stay calm software Tom, and thank you everyone for listening. A quick disclaimer and reminder this presentation does not constitute an attorney or CPA client relationship, and it is always in your best interest to consult competent legal and tax professionals when conducting your own personal transactions.
00:38:13:18 – 00:38:25:13
Unknown
We also want to make sure you know this is not investment advice or financial advice. We’re just trying to give you education ideas and strategies you can take to your professionals or conduct your own research on. We’ll see you next time.
