Best way to pay out private investors

[Ebony S.]

Hi BP, thanks for your help! I'm about to close on my 1st flip. For the deal, I used private investor money in addition to my own and hard money. I was wondering what you thought the best way to pay out my investors would be. Should I have them complete  a Form W-9 (Request for Taxpayer Identification Number and Certification)? Should I give them a Check, Cashiers check, or wire them the money? Also, I'll be returning both their initial investment and the money they earned (interest). Do I only need to document the interest earned on their 1099 at the end of the year if I use the w-9 to pay them? I don't want to pay taxes on the money that I didn't earn myself because I paid it out to the investors. For example, if the profit is 50k but I paid out 25k to investors, I don't think I have to claim the 25k paid to investors as income for myself, right? I'm so appreciative of your advice. Thanks so much! ~ Ebony

[Chris Martin]

I don't understand why you are dealing with other people's money. That what closing attorneys do. They handle the payouts, etc., for lenders... private lenders or big national banks. You give them the payoff amount and the title company / attorney does their job. All funds dealing with the property should be on the HUD-1 and should bring the sale to close. If you are paying people outside of closing (identified as "POC" by most firms I've dealt with) then any errors and omissions will be on you. My 2 cents.