New to the forum and glad to have found the wealth of information here on Bigger Pockets. I am not new to forums but, I have been unable to find a breakdown in laymen terms for my questions about being a personal lender to investors. My wife and I are just under the threshold for becoming accredited investors and to be frank we are not liquid enough currently to send off large sums of money for lengthy time frames at this point.
As a little bit of background I've done several personal loans to active real estate investors this year for various small amounts 5k 2 months 2k fee, 6k 6weeks 1.5k fee, etc with promissory notes and all the standard things that come along with them. I would like to get more serious about lending and continue to grow this as additional income and begin to do larger deals and I have a few questions I am hoping to get pointed in the right direction for information:
1. At what point should I create a business entity for this? The first few deals have been personal banking in it's own separate account to make it easier for me to put tax money for personal income to the side but, I want start doing larger amounts and I'm not sure when the benefits/protections of an LLC will be most effective.
2. If I do create an LLC, the initial funding will be personal capital. After I use the initial capital to create some profits in the business, I would like to pull the principal investment back into my personal funds and allow the business the grow from the profits stand alone. Based on my research an arms-length documented loan is better rather than a capital investment into the LLC, correct?
3. What are some of the pros/cons to officially becoming an official business giving loans? It seems like it may become more of a nuisance with additional requirements vs traditional personal loans but, if I ran into a situation where I end up owning a property, I wouldn't necessarily want that in my personal name either.
If you've gotten to this point thanks so much for reading!
You probably already know this but note investing can be popular with some on here.
Getting a new bank over the regulatory hump and started may be another option if you really have the stomach for that!