I recently acquired a dba to use for all of my real estate investing projects. The dba is over 6 years old. I applied for loans and lines of credit through a company on the internet called KGI. They were able to secure over $300K in unsecured loans/lines of credit for my business using my personal credit. They took my application and submitted it to many lenders and they all responded with their approvals. My problem is that I won’t be able to pursue the real estate projects I targeted because my employer has sent me on a 3-4 month assignment out of state.
What do I do with the $300K I received from the banks? What is the best way to park these funds until it is time for me to put them to use on my real estate projects? I have enough income to make the loan payments for about 6 months.
If I don’t do any projects this year and only pay the monthly interest payments on my loans, what kind of IRS/tax implications will that have on my business?
I’m just not sure what to do. Any advice would be appreciated.
Your post mentions both loans and lines of credit. Which is it, did you actually close a loan and receive the funds or did the lender(s) simply provide you a line of credit? Line of credit is great since it doesn’t cost you any interest until you make a draw. If you closed the loans then now you need to park the money in a short term ultra safe investment until you are ready to invest in real estate. Perhaps a MMA or 3-month CD, at least a portion of your interest expense will be offset by the deposit earnings. Read up on basic accounting, in this scenario your business will have both income and expense to report.
I’m getting almost 5% with my money market account. Nearly twice as much as a conventional savings account. I also have a CD with a bit higher interest, and one penalty free withdrawal…I can take some out, or cash the entire thing out with no charges, once.
Those are helpful details. Don’t worry about the IRS, they don’t care what you are doing with the loan proceeds so long as you pay your taxes. There are many federally insured deposit options available to you that will offset at least some of the interest you are paying on the loans. A number of on-line banks (ING, HSBC etc.) are paying 4-6% on new money with no minimum, fees, or withdrawal penalty. You need to read the fine print because some of these banks do not offer these accounts for business’. So if you park the money short term in an interest bearing account then pull it out in a few months to start making acquisitions then you will have interest income to report on your tax return at the end of the year along with the interest expense you pay on the loans. It’s really pretty straight forward.
Thanks for all the advice. I just started investing about a year ago. I’m kind of surprised I was able to get this much funding. I would have to credit my mentor for helping me obtain this funding. He’s suggesting a money market account as well. I just need to make sure I fully understand the terms for withdrawal and any penalties that would apply.