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Beau Brockway
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506(b) Exploration and Advice Needed

Beau Brockway
Posted Sep 12 2020, 08:47

Hello, 

My business partner and I have just set up our LLC and are beginning to source properties for our first purchase under our LLC. We are purchasing our first property(s) by using a funding source from someone we know personally, with the commitment to pay that person back what they lent us, plus a 2.75% interest rate.

After having listened to episode 354 on the Bigger Pockets podcast, we feel like we may be very closely resembling a 506(b) approach. We do not plan on the 506(c) approach but would love to get to that after we get to a certain size and have demonstrated our ability to do this successfully. Before we make any purchase, we want to determine if we should explore a 506(b) more formally. 

We are eager to learn and do this the right way, so are seeking any advice or insight when it comes to 506(b) funding/investing and how to operate correctly and legally under this structure. Any advice, documents or web pages that can get us pointed in the right direction would be great. Some initial questions that come to mind are below: 

1) What do we have to do to operate formally/legally in a 506(b) structure? 
2) What are the downsides of a 506(b) structure? 
3) What are the upsides of a 506(b) structure?
4) Does a 506(b) replace an LLC or operate in-tandem to an LLC?
5) Can the initial 506(b) funding serve as a down payment for a property and the remainder of the property be financed through a bank?
 

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