What if you could create a funding source to easily and quickly draw upon funds to finance your investments?
While it’s a new year as I write this, the concept of creating a private bank for your personal investing – or investing together with friends and family – is an intriguing idea for growing your portfolio and getting great returns. It’s something we’re expanding on in 2016 since it’s worked well for us in the past.
Who Needs A Private Bank?
Real estate investors are often looking for financing for their deals, and by becoming the bank, you can step in and fulfill this role.
Losing out on a great deal for lack of funding is one of the most common issues for real estate investors and fix-and-flippers. But you can use the private bank concept to simply grow your own capital at an exceptional rate, or create a private bank group as a real estate investor with an unending supply of funds for your deals.
The private bank concept is borrowing money from an individual’s IRA (self-directed IRAs, HSAs, Roth IRAs, etc.). Over the past few years, we have used this concept for our own investments secured by real estate.
The Private Bank Concept
Here’s how it works:
- Find an investment property. Negotiate a 75% or less loan-to-value ratio to give your investors a good rate of return. On the first time or two, make sure to give yourself enough time through a contingency clause to find the right investors. (Once they see the returns, they’ll likely be anxious for you to keep the deals coming!)
- Present the deal to your potential investors, such as friends, business associates and local professionals (Don’t advertise to strangers though – that can get you into legal trouble!). Their investment will be secured by real estate at less than the cost to sell the property if something goes wrong with the deal – security that investors can’t find in the stock market. Plus, their money will be growing tax free, depending on the kind of IRA they have.
- Help your investors open accounts to move their IRAs to a self directed custodian which allows them to hold real estate. Once your investors have setup their accounts, and the details of the real estate investment have been agreed upon, you are ready to use these funds again and again for your deals.
When setting up a private bank, we recommend that you consult with your legal professional for any applicable regulations in your area. I’m not an attorney or a tax professional, so I always rely on the experts to guide me.
When setting up these deals, it’s not difficult to pay investors a 7-10% (or more) return on the deal, depending on how it’s set up. I rely on the Ohio-based Equity Trust Company to set these accounts up. Founder Dick Desich was a pioneer in the business and has grown the company over 25 years. You’ll want to find a company that you can feel comfortable with – and that doesn’t charge high fees.
Get the guide to setting up a Private BankClick To Download
If you’re not sure how to get started after reviewing the guide, let me know, and I’ll answer questions on this or point you in the direction of someone who can.