Where to park your money between loans
New to Real Estate · Knoxville, TN · Member since 2022 · 26 posts · 3 votes
Where to park your money between loans
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Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votesQuote from @Scott Loud:
Hello, I just got started with PML with one of my retirement accounts. I was wondering where folks who partake in this business hold their capital when it isn't loaned out? I would assume a high yield savings might be the easiest and most liquid option but I'd like to hear from those that are seasoned.
28 Replies
- 2yDoug SmithPro MemberLender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
Bank Money Markets are earning 4.5%...sometimes more right now. It's FDIC insured and liquid. If you're holding it for a month or two, that's your best bet.
- New to Real Estate · Knoxville, TN · Member since 2022 · 26 posts · 3 votes2y
Thanks! @Doug Smith
- 2yBeth JohnsonPro MemberLender · Renton, WA · Member since 2018 · 227 posts · 216 votes
@Scott Loud
Have you considered working with a private money lender that does direct placement of whole notes with capital partners? This may reduce the time between deals as they often have more loan opportunities than capital on hand.
Also, if you haven't done so already, check out my book published by the BiggerPockets that is a comprehensive guide to finding and finding a PML safely and securely. It's called Lend to Live: Earn Hassle-free Passive Income in Real Estate with Private Money Lending.
- 2yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
you're doing private lending out of a retirement account? no offense but that seems highly risky.
- New to Real Estate · Knoxville, TN · Member since 2022 · 26 posts · 3 votes2y
Quote from @Beth Johnson:
@Scott Loud
Have you considered working with a private money lender that does direct placement of whole notes with capital partners? This may reduce the time between deals as they often have more loan opportunities than capital on hand.
Also, if you haven't done so already, check out my book published by the BiggerPockets that is a comprehensive guide to finding and finding a PML safely and securely. It's called Lend to Live: Earn Hassle-free Passive Income in Real Estate with Private Money Lending.
Thanks for the reply! Yes I've read the book and intend to read it about 5 or 6 more times. I am currently using Marshall Reddick as a means to dip my toes in the water until I get my bearings enough to take on a transaction by myself.
- New to Real Estate · Knoxville, TN · Member since 2022 · 26 posts · 3 votes2y
Quote from @Nicholas L.:
you're doing private lending out of a retirement account? no offense but that seems highly risky.
@Nicholas L. - I am using my SDIRA LLC to perform these transactions. I do understand the risks involved in the business as I educated myself quite a bit before deciding to engage. Curious what your thoughts are of additional risks involved using retirement money vs personal funds?
- 2yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
while it's no more or less risky from the perspective of the loan - as a loan made with cash in a checking account is no more risky than a loan made with retirement funds or with dimes and nickels - it seems like you'd use separate funds that you could afford to take some losses on, rather than retirement funds. but i don't know anything about your financial situation nor the people you'd be lending to. are these trusted investors in your network with a strong track record? or are you going to be marketing yourself?
- Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes2y
I do this whole life insurance thing, and some folks call it "infinite banking." Basically, it's a way to store your cash while still having access to it for things like loans or investments. The key is finding a provider with insurance costs below 10% to maximize your benefits and lower your commissions you pay.
You start by setting up this whole life insurance policy, and you pay premiums into it. Over time, the policy builds cash value, and you can borrow against that cash value whenever you need it. It's a bit like having a savings account that grows over time, but with some tax advantages.
In my case, I use this strategy when I'm involved in syndication deals. It's super handy to have that cash readily available for investing in these opportunities without jumping through hoops or waiting for loan approvals. Happy to answer any questions or provide more insights! - New to Real Estate · Knoxville, TN · Member since 2022 · 26 posts · 3 votes2y
@Nicholas L. - for now I am using the Marshall Reddick platform until I can get some systems in place to make loans on my own. I am involved in my local REIA and have a few folks who are reputable that I am planning to market myself to.
- New to Real Estate · Knoxville, TN · Member since 2022 · 26 posts · 3 votes2y
Quote from @Lane Kawaoka:
I do this whole life insurance thing, and some folks call it "infinite banking." Basically, it's a way to store your cash while still having access to it for things like loans or investments. The key is finding a provider with insurance costs below 10% to maximize your benefits and lower your commissions you pay.
You start by setting up this whole life insurance policy, and you pay premiums into it. Over time, the policy builds cash value, and you can borrow against that cash value whenever you need it. It's a bit like having a savings account that grows over time, but with some tax advantages.
In my case, I use this strategy when I'm involved in syndication deals. It's super handy to have that cash readily available for investing in these opportunities without jumping through hoops or waiting for loan approvals. Happy to answer any questions or provide more insights!@Lane Kawaoka Thanks for the reply. I have looked into that but I wasn't at the time thinking about using it in that avenue. I need to look into this a little more.
- Member since 2019 · 7k+ posts · 4k+ votes2y
Quote from @Scott Loud:
Hello, I just got started with PML with one of my retirement accounts. I was wondering where folks who partake in this business hold their capital when it isn't loaned out? I would assume a high yield savings might be the easiest and most liquid option but I'd like to hear from those that are seasoned.
there're some HML fund that's as liquid as 30 days redemption. - 2yMatthew DrouinPro MemberDeveloper · Rochester, NY · Member since 2016 · 406 posts · 339 votes
@Scott Loud I do HML as well as PML and many people face the same challenge:
"I get a good ROI while my funds are on the street but it gets blended down when I get paid back."
For instance if you lent our at 12% for 6 months, got paid back in 6 months, and then your cash was sitting in an account earning 5%, your total effective rate earned is 8.5%
Not everybody is a fan but this is what I do:
I lend out longer term.
My interest rate is going to depend upon the environment but I’ll have a 3% pre payment penalty if the loan is paid back less than 3 years.
The operator has to have a good track record of doing value add deals and a good business plan for the opportunity.
Let me know if I can be of any further help!
- 2yDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votesVanguard Federal Money Market Fund - current yield 5.23%
Quote from @Scott Loud:
Hello, I just got started with PML with one of my retirement accounts. I was wondering where folks who partake in this business hold their capital when it isn't loaned out? I would assume a high yield savings might be the easiest and most liquid option but I'd like to hear from those that are seasoned.
- Member since 2019 · 7k+ posts · 4k+ votes2y
Quote from @Don Konipol:
Vanguard Federal Money Market Fund - current yield 5.23%Quote from @Scott Loud:
Hello, I just got started with PML with one of my retirement accounts. I was wondering where folks who partake in this business hold their capital when it isn't loaned out? I would assume a high yield savings might be the easiest and most liquid option but I'd like to hear from those that are seasoned.
My friend. One credit union in South SF is now offering 6.50% CD
LOLLLLLLLLLL How could they give interest higher than some CEF/HML ... I don't know
It's crazy time. - Member since 2019 · 7k+ posts · 4k+ votes2y
These Credit Union industry is really crazy when giving back to customer.
One CU is giving 6.50% CD.
While next door CU is loaning 5.25% 10YARM to folks like me. LOL. Crazy time.
One could just arbitrage with all these craziness in Yield. - Member since 2019 · 7k+ posts · 4k+ votes2y
Quote from @Scott Loud:
@Nicholas L. - for now I am using the Marshall Reddick platform until I can get some systems in place to make loans on my own. I am involved in my local REIA and have a few folks who are reputable that I am planning to market myself to.
There're many more HML rather than Marshall Reddick. Focus is try to invest in (non-online) local-based conservative-underwriting only HML that focused in the city (not region or nationwide).
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes2y
Quote from @Carlos Ptriawan:
These Credit Union industry is really crazy when giving back to customer.
One CU is giving 6.50% CD.
While next door CU is loaning 5.25% 10YARM to folks like me. LOL. Crazy time.
One could just arbitrage with all these craziness in Yield.🤔 Arbitrage borrowing? Easy and risk-free? I thought I'd seen it all!
- Member since 2019 · 7k+ posts · 4k+ votes2y
Quote from @Steve Vaughan:
Quote from @Carlos Ptriawan:
These Credit Union industry is really crazy when giving back to customer.
One CU is giving 6.50% CD.
While next door CU is loaning 5.25% 10YARM to folks like me. LOL. Crazy time.
One could just arbitrage with all these craziness in Yield.🤔 Arbitrage borrowing? Easy and risk-free? I thought I'd seen it all!
LOL ... basically if we have one mil dolar in cash, we could do:
purchase 500k house with 5%-ish ARM mortgage rate
Then enjoy the 500k cash generating 6.5% income.
I never seen this era like today LOL - Member since 2019 · 7k+ posts · 4k+ votes2y
we as landlord is really living in the paradise era of DISINFLATION, paying bank 2.5% mortgage rate with 2009 GFC home purchase. And now enjoying risk free 6.50%. No wonder so many people hates landlord LOL.
- 2yDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votesHow long is the term for the 6.5% CD?
Quote from @Carlos Ptriawan:
Quote from @Don Konipol:
Vanguard Federal Money Market Fund - current yield 5.23%Quote from @Scott Loud:
Hello, I just got started with PML with one of my retirement accounts. I was wondering where folks who partake in this business hold their capital when it isn't loaned out? I would assume a high yield savings might be the easiest and most liquid option but I'd like to hear from those that are seasoned.
My friend. One credit union in South SF is now offering 6.50% CD
LOLLLLLLLLLL How could they give interest higher than some CEF/HML ... I don't know
It's crazy time. - Member since 2019 · 7k+ posts · 4k+ votes2y
Quote from @Don Konipol:
How long is the term for the 6.5% CD?Quote from @Carlos Ptriawan:
Quote from @Don Konipol:
Vanguard Federal Money Market Fund - current yield 5.23%Quote from @Scott Loud:
Hello, I just got started with PML with one of my retirement accounts. I was wondering where folks who partake in this business hold their capital when it isn't loaned out? I would assume a high yield savings might be the easiest and most liquid option but I'd like to hear from those that are seasoned.
My friend. One credit union in South SF is now offering 6.50% CD
LOLLLLLLLLLL How could they give interest higher than some CEF/HML ... I don't know
It's crazy time.8 months.
As 10% yield is reaching new high today I would guess some CU could offer high 5 rate by end of this year. - 2yDoug SmithPro MemberLender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
Quote from @Scott Loud:
Quote from @Nicholas L.:
you're doing private lending out of a retirement account? no offense but that seems highly risky.
@Nicholas L. - I am using my SDIRA LLC to perform these transactions. I do understand the risks involved in the business as I educated myself quite a bit before deciding to engage. Curious what your thoughts are of additional risks involved using retirement money vs personal funds?
I saw this part of the chain and I thought I would chime in. I've been a lender, banking executive, and now I own a mortgage company and real estate investment company over a 30+ year career. We actually place loans through our NMLS-licensed mortgage company for investors including SDIRA investors, so I've done thousands of these transactions in my career. When I was working in banking, I could only have a delinquency rate of 0.4%. That means I have to be right 99.6% of the time and, when a deal does go bad, we've had to already have a secondary and tertiary exit strategy in mind before making the loan. I just did a podcast and webinar for Advanta IRA about private lending from an IRA as those that lend out of their IRA and even the gurus that teach it tend to have zero formal credit background in making sound credit decisions. Lending from your IRA can be much, much safer than using it for real estate investment, but you have to know what you're doing. For instance, we pull credit on all of our borrowers and analyze the cash flow & exit strategies on every deal just as banks do it. I'll PM you links to those two Advanta presentations. it might be helpful. Good luck and let me know if you run into questions.
- New to Real Estate · Knoxville, TN · Member since 2022 · 26 posts · 3 votes2y
Quote from @Doug Smith:
Quote from @Scott Loud:
Quote from @Nicholas L.:
you're doing private lending out of a retirement account? no offense but that seems highly risky.
@Nicholas L. - I am using my SDIRA LLC to perform these transactions. I do understand the risks involved in the business as I educated myself quite a bit before deciding to engage. Curious what your thoughts are of additional risks involved using retirement money vs personal funds?
I saw this part of the chain and I thought I would chime in. I've been a lender, banking executive, and now I own a mortgage company and real estate investment company over a 30+ year career. We actually place loans through our NMLS-licensed mortgage company for investors including SDIRA investors, so I've done thousands of these transactions in my career. When I was working in banking, I could only have a delinquency rate of 0.4%. That means I have to be right 99.6% of the time and, when a deal does go bad, we've had to already have a secondary and tertiary exit strategy in mind before making the loan. I just did a podcast and webinar for Advanta IRA about private lending from an IRA as those that lend out of their IRA and even the gurus that teach it tend to have zero formal credit background in making sound credit decisions. Lending from your IRA can be much, much safer than using it for real estate investment, but you have to know what you're doing. For instance, we pull credit on all of our borrowers and analyze the cash flow & exit strategies on every deal just as banks do it. I'll PM you links to those two Advanta presentations. it might be helpful. Good luck and let me know if you run into questions.
Thanks! I appreciate that
- Gibson City, IL · Member since 2016 · 15 posts · 9 votes2y
Quote from @Scott Loud:
Quote from @Doug Smith:
Quote from @Scott Loud:
Quote from @Nicholas L.:
you're doing private lending out of a retirement account? no offense but that seems highly risky.
@Nicholas L. - I am using my SDIRA LLC to perform these transactions. I do understand the risks involved in the business as I educated myself quite a bit before deciding to engage. Curious what your thoughts are of additional risks involved using retirement money vs personal funds?
I saw this part of the chain and I thought I would chime in. I've been a lender, banking executive, and now I own a mortgage company and real estate investment company over a 30+ year career. We actually place loans through our NMLS-licensed mortgage company for investors including SDIRA investors, so I've done thousands of these transactions in my career. When I was working in banking, I could only have a delinquency rate of 0.4%. That means I have to be right 99.6% of the time and, when a deal does go bad, we've had to already have a secondary and tertiary exit strategy in mind before making the loan. I just did a podcast and webinar for Advanta IRA about private lending from an IRA as those that lend out of their IRA and even the gurus that teach it tend to have zero formal credit background in making sound credit decisions. Lending from your IRA can be much, much safer than using it for real estate investment, but you have to know what you're doing. For instance, we pull credit on all of our borrowers and analyze the cash flow & exit strategies on every deal just as banks do it. I'll PM you links to those two Advanta presentations. it might be helpful. Good luck and let me know if you run into questions.
Thanks! I appreciate that
I'm late but I second Lane's recommendation. Dividend paying whole life is like storing money in a bank but its your bank. Meaning you don't have to get approval to access YOUR capital. You make your "deposit" AKA premium with NO market risk, NO tax exposure(when structured correctly). The best part is it keeps compounding on the full amount even if you've removed some of it. Guaranteed growth, uninterrupted compounding, and control of your capital at all times. Oh and its still life insurance so someone is getting paid if something happens to you. It does require some education so hit up https://infinitebanking.org/ as well as read the book Becoming your own Banker. Plenty of podcasts on it as well.
- Specialist · Grand Rapids, MI · Member since 2020 · 116 posts · 80 votes2y
Quote from @Scott Loud:
Quote from @Lane Kawaoka:
I do this whole life insurance thing, and some folks call it "infinite banking." Basically, it's a way to store your cash while still having access to it for things like loans or investments. The key is finding a provider with insurance costs below 10% to maximize your benefits and lower your commissions you pay.
You start by setting up this whole life insurance policy, and you pay premiums into it. Over time, the policy builds cash value, and you can borrow against that cash value whenever you need it. It's a bit like having a savings account that grows over time, but with some tax advantages.
In my case, I use this strategy when I'm involved in syndication deals. It's super handy to have that cash readily available for investing in these opportunities without jumping through hoops or waiting for loan approvals. Happy to answer any questions or provide more insights!@Lane Kawaoka Thanks for the reply. I have looked into that but I wasn't at the time thinking about using it in that avenue. I need to look into this a little more.
Lane, this is a good long term option, but not good for short term lumps sums of cash. I would say it's a separate conversation for you.... or at least over 5-7 years you can spread out the premiums.
The reason is that the it needs to remain outside of the MEC (modified endowment contract) status, which is a ratio between premium and death benefit. You could design a policy where you still maintain the tax-free loan capabilities, but the death benefit would be so high, the cost of the insurance itself would hinder the growth of the policy.
The concept is to "squash" the death benefit as low as possible to promote cash value growth, and that's usually done with spreading the contributions over a longer period of time.I can run numbers for you if you'd like to reach out.
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