Frequently Asked Questions
Every investor’s situation is different, but we often hear versions of the questions below and wanted to share them here in order to get you thinking.
Of course, the “answers” given below are necessarily incomplete due to space limitations – and they certainly shouldn’t be considered as being legal, accounting, and financial advice. That said, we stand by our perspective on these questions and have tried to answer based on real-world experience.
After you read over these common questions, contact us with your own. We’re here to help.
Q: How do I get the benefits of investing in real estate without having the hassles of being a landlord?
A: There are several ways to participate in real estate without having the responsibility of being a landlord. For example, you can be a private lender who works with a “rehabber” to acquire, improve, and resell or hold a property. You can also own the debt secured by a property by becoming a note investor. You could also participate indirectly by investing in a real estate of note fund such as the Wilmington Fund. Each of these strategies gives you specific advantages, so it’s best to discuss them with a Wilmington Financial team member to sort through your options and find the ones best for your situation.
Q: How do I build up passive income while protecting my nest egg?
A: Most of the busy professionals we work with are eager to build up passive income streams to supplement and ultimately replace their active, work-based income. How do they do that? First, they review their passive income-producing options (real estate, notes, private lending, private placements..) and select one or more vehicles to get started with. Then, they find specific capital placement opportunities in their chosen niche. Finally, they continue to manage and grow their passive income portfolio over time.
Q: What’s the Wilmington Fund?
A: The Wilmington Fund is a private placement opportunity for accredited investors (see below for definition) in which you purchase shares of a note investing fund and get paid a fixed preferred return (currently 8%) via ACH transfer every month.
Q: What options do unaccredited investors have?
A: Unaccredited investors are able to participate in private lending and note and real estate investing, each of which may be an excellent way to build passive income and build wealth.
Q: What exactly is “note investing?”
A: Note investing is simply owning a loan secured by real estate. For example, if you have a mortgage on your residence, the bank that made the loan can and often does sell that loan to another investor. For individual investors like you, this means that you can “become the bank” by purchasing such loans, usually at a discount, after which you receive mortgage payments instead of rent like property owners receive.
Q: What is private lending?
A: Private lending is the most common scenario is when an individual lends money from cash reserves or retirement funds held in a self-directed IRA to another investor who acquires and improves a property for resale. The benefit to the investor is that he gets the capital he needs to do the project and shares in the sale proceeds, and the benefit to the lender is that he is paid for the use of his capital and is able to foreclose on the property if the investor defaults.
Q: What’s a self-directed IRA and why do I need one?
A: A self-directed IRA is a retirement account in which you’re allowed to direct its investment activity, allowing you to purchase rental property, invest in real estate-secured notes, and lend money (create notes), as well and many other things. Best of all, your gains are tax-deferred in a traditional IRA or tax-free in a Roth IRA.
Q: What’s the definition of an accredited investor?
A: An accredited investor must typically meet at least one of the following criteria:
- an individual with income exceeding $200,000 or joint income with his or her spouse of at least $300,000, in each of the last two years with the expectation to reasonably maintain the same level of income in the present year;
- an individual with a net worth exceeding $1 million, excluding the primary residence, either individually or jointly with his or her spouse