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Last week when we had Tom Wheelwright on the show, he brought up an interesting way that investors can deduct HELOC interest despite the new tax code. Since Natali and I are always looking for new ways to grow our portfolio and build wealth, our interest was officially piqued.
On this episode of Investing in Real Estate, Natali and I are discussing how to use promissory notes for real estate investing. You’ll learn what promissory notes are, and how you can use them to grow your real estate business. We’ll discuss the major benefits, as well as examine how to ensure your promissory notes are correctly constructed. This is an amazing strategy; you won’t want to miss episode 304!
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A promissory note is a legal instrument that functions like an IOU; it lists that the borrower agrees to pay back the loan and outlines the repayment terms. Typically, a promissory note is an agreement not regulated by the government—used for notes like private loans.
Unlike traditional bank loans, a promissory note can be constructed under a variety of terms. The lender and borrower are able to negotiate the interest rate, length of term, and payment schedule. This allows for more freedom, and the flexibility to decide upon terms that fulfill each party’s needs.
Legally, it’s best to ask your attorney or tax team for a promissory note template. The note should be signed by both parties, and the file must be date stamped. Tom Wheelwright explained that despite the new tax code, real estate investors could use a promissory note to deduct HELOC interest.
In this instance, the promissory note proves that the acquisition is an investment, which qualifies it as tax deductible. We decided to use this strategy by lending money from our HELOC to one of our businesses. This is so powerful because not only are we able to purchase more real estate and deduct the interest, but we can also match or increase the amount of interest that the bank charges us on our HELOC.
On today’s show, we’ll speak in depth on different ways you can use a promissory note to invest. We’ll talk about setting appropriate interest terms, and how to keep track of your money. You’ll learn about how we use a promissory note with our HELOC, and much more!
If you’re ready to begin building a passive income through rental real estate, book a FREE call with our team today. We’re ready to talk about your goals and want to help you learn more about earning legacy wealth for you and your family.
On this episode you'll learn:
- What is an acceptable interest rate on a promissory note?
- Which documents should be notarized in a private lending transaction?
- Is owning notes a smart investment?
- And much more!
EP302: What You Need to Know About the New Tax Law - Interview with Tom Wheelwright
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