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Hard Money is a term you will often hear amongst real estate investors because it is another way to generate cash for real estate deals. Hard money lenders are sometimes the only people willing or able to give you the money you need to get your deals done. Hard money is great for beginning investors who may not have money or for those who have bad credit and cannot qualify. Investors also use hard money when they need to purchase quickly. But what exactly is Hard Money and how do you find a good hard money lender?
What is Hard Money?
Hard money is no more difficult to obtain than 'soft money', but its terms are very strict because most hard money comes from private individuals with a great deal of money on hand. This is why hard money is also referred to as "private money". The money used for investment purposes comes from people, just like you and I, not a typical lending institution. So their first priority is to protect their investment capital. This is why the terms have to be so strict.
Self Directed IRAs
Investing IRA funds in real estate used to be quite complicated, time-consuming, and expensive. Deals had to be administered by IRA custodians every step of the way, complicating the process, and fees had to be paid to the custodian every time the IRA made a move. Although, much of this is still true with many traditionally IRAs, investors can avoid a lot of unnecessary and costly steps by using a self-directed IRA.
A self-directed IRA is simply an IRA in which the IRA owner is able to make investment decisions without having to get the custodian's approval. The favorite instrument for opening a self-directed IRA is the Limited Liability Company, which allows the IRA owner to have absolute checkbook control over his or her IRA. This means every time you have to pay an expense associated with an IRA asset, you can write the check yourself and avoid custodian fees.
Making Money with Real Estate
Self-Directed IRAs are great for avoiding taxes on gains, especially for flipping properties. It is recommended that you use the SDIRA for real estate transactions that generate immediate (or almost immediate) taxable income (such as flips or options) and generally not buy and hold deals, that already shelter other income via componentizing.
Selecting the right entity structure for your real estate deal can mean the difference between building and losing incredible wealth. It's vitally important to incorporate correctly to protect yourself, your assets and your wealth. I get a lot of questions about entity structuring, particularly on legal, tax and compliance issues. Your goal is to find one that meets all three criteria. One size does not fit all. Structures can be changed.
Here is a summary of Questions and Answers related to entity structuring.
QUESTION: I have seen that many investors have an LLC. What are the benefits to a landlord that only has one property? Should I create one?
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