How Creating Your Own Mortgage Company Can Help Your Investment Portfolio

It may seem too good to be true, but did you know you can create your own mortgage company? It’s a great tactic for real estate investors who want unlimited equity stripping powers, as well as a solid asset protection boost. Or maybe you’re just TIRED of the convos with crappy banks. You can break free from financial institutions with gatekeepers and defend your assets with this simple method. We’re going to give you four steps to creating your own mortgage company, and some brief tips on how to use it for your benefit.

How to Create Your Own Mortgage Company for Real Estate Investing: Four Simple Steps to Freedom

Actually creating the company is simpler than you think. Let’s break down the most essential steps.You need not have anything much more sophisticated than you’d need for any other company set-up. And you can simply read for now, of course.

Here’s our most basic recipe for creating your own mortgage company in as few steps as possible. It’s helpful to think of this like a recipe card, in the old fashioned sense, but for an equity stripping mortgage company you get to control. For best results, you’ll need:

  • ONE Operating Company. It can be a brand new Traditional LLC. Or it could be the operating company you already use for asset protection. But you can’t use a company that has ANY assets of its own. It must be a company that strictly handles operations, often in the form of a shell company. Shell companies, if you’re not yet hip, are your face to the world for performing business while keeping real estate investment assets well-protected.
  • ONE Asset-Holding Company.
  • ONE or more helping professional (attorney, CPA, mortgage expert, etc.) or team of pros to provide support as needed.
  • TIME AND A BIT OF PATIENCE. You can form each of these companies within a couple months, or even within weeks. But getting your mortgage company right is worth the wait.

Step One: Use or Create a Traditional LLC

This will be your actual mortgage company, the one issuing the loans. You’ll just be able to control it with some help from a J.D. friend. If you already have a Traditional LLC you’ve used as a shelf company for a while, or one that had ONLY ever performed operations, you may be able to avoid even filing new fees in cheap state like Texas and Wyoming.

Step Two: Use or Create an Asset-Holding Structure (or Update Yours)

Series LLCs make awesome holding companies. These powerhouse entities allow you to create as many Series/mini-LLCs as you have assets. Each has liability protection, performing the same function as infinite LLCs. This structure’s infinite scaling works well for REIS with growing portfolios, streamlines business, and works well with your other structure.

In your new set-up, this the company does NOTHING except hold assets. It won’t spend one cent (or take one). Assets stay in the structure, appreciating. You want things this way to keep the actions and assets divided.

So this will be the company that holds all of your assets, including real estate investments. Your new LLC will be able to issue notes directly to the asset-holding company. Ideally, you’ll use a Series LLC so that upkeep is easy and you can scale up at any time, and make sure your asset protection strategy grows alongside your business and evolves to meet any new needs.

Step 3: Know the Game Plan for Equity Stripping

So much of asset protection is just keeping your pants up and approaching each move with absolute confidence. Do the math ahead of time, for crying out loud. Know exactly what kind of loan you can get away with issuing yourself. Do some brief research to see how much you can encumber property. Better yet, bounce your plan off of those friendly pros we keep mentioning: tax men, law men, music men, investors, stylists, or anyone with a business mind adds value to due diligence, provided you let them.

If you get lost creating your plan, dial up a free helper. The Office of the Taxpayer Advocate can actually give you tons of great, free advice on the tax consequences of your structure. Many professionals can be easily bought for under $100. That’s for just long enough to answer your burning desire questions once you've done thorough research. We can share some examples at a later date, but don’t want anyone attempting an example verbatim from this or any educational piece.

Step 4: Start Issuing Mortgages - The Right Way, Of Course!

So for our purposes, “the right way” has a nice easy definition.  Mortgages must be issued by the traditional company TO the asset holding company. Money must flow in this exact direction, or the company set-up won’t be effective.

The bottom line about preserving this structure is to isolate assets and operations properly. Keep everything nice and separate, ensure money flows the right way, rinse, repeat, and enjoy your friendly mortgaged investment and easier life. That’s it. Seriously. You’re done.

What Happens if I’m Sued?

Well first of all, it’s super unlikely. With your own mortgage company encumbering a property, attorneys quickly realize it’s worthless--or at least, appears to be. Thats’ actually exactly what we want: you know the value of your property. The purpose is just to deceive others from knowing this true value. And what better way to convince someone not to sue you by making it clear from the outset you have nothing they would possibly want?

Usually the plaintiff (AKA, Jerk Who’s Suing You) will hire a lawyer, often with lots of theatrics in the office. We’re not a defense firm, but trust us when we say pissed off real estate clients are highly entertaining. This isn’t a legal opinion at all, but a personal taste--there’s nothing funnier to us than imagining that Jerk Who’s Suing You getting angrier and angrier in front of an annoyed attorney. Now, the annoyed attorney will run a quick check on you and the property. This quick little bit of research is STEP ONE for even thinking about filing a lawsuit.

You have to know who you’re suing, after all. It helps to know why. But really, what the lawyer cares about is this: 

  1. What they stand to win. Is it a juicy asset? Cash-money’s better, but an asset to seize and sell will pay the bill for a lawsuit, easily.
  2. Whether they can win. In the case of an incredibly self-encumbered asset, even if the asset rivals the Taj Mahal, a friendly enough mortgage could render it worthless.
  3. How soon they get paid. Even if the attorney thinks the first two items, against all odds, are slam-dunk things to defeat in court, that same attorney will balk the moment they learn the mortgage must be paid off before they can even COLLECT on the asset. If you issue yourself a 50-year-mortgage and pay it in tiny increments, they’d know not to endure the torture of trying to get their client ot pay out of pocket. Landlord-tenant clients rarely do, preferring instead to rely on rage and self-righteousness to persuade their attorneys.

Fortunately for you, fellow real estate investor, lawyers are weak creatures with known vulnerabilities. Your asset protection plan protects you strongly by protecting you against not the Jackass Suing You, but their attorney. The moment the two don’t have the same interests any more? That’s the moment the lawsuit ends--well before anyone can even draft anything to file!

It’s liberating, right?

Do I Need Any Other Special Mortgage Licensing?

No, not if you are executing the mortgages correctly in the state of Texas. But that’s just my state--your state may have stronger or weaker regulations.

Specialized advice on this from an attorney with experience in this specific type of move in this jurisdiction may help, or you may simply hire a mortgage broker. Use these conversations to gather some intel about mortgage options on your investments. If you collect enough data, it will become clear that issuing your own mortgages is a legal golden ticket. It’s how you break free of banking as usual and afford to develop a portfolio that can build wealth quickly.

Use some of that investor creativity if you’re extremely concerned about legal compliance, pick up the phone, and ask at least another investor (if not some kind of pro) for help.

Wait, You’re SURE This Whole “Making Your Own Mortgage Company” Deal is Legal? Why Spill the Secret?

Yes. It’s really that simple. All you’re doing is using the structures and strategies that have long been available only to the wealthiest of wealthy investors.

Do you know the difference between  Beachcraft Rich and Learjet Rich? We can actually use it to make a broad marker of kinds of investors.

Consider this. Each investor has a number for this thought experiment, and yours may be zero, but think about how you WOULD pay if you were rich. Then consider how rich you’d have to be to play along and feel good about it. Sounds fun, let’s give it a try, shall we? Finding out if you’re Beachcraft rich or Learcraft Rich is easy.

Imagine you need to go somewhere by plane, but have no desire to avoid the airport. Would you spend:

  1. $750,000 on a beachcraft to take you and your friends/family to your destination.
  2. $1.5 M on a Learjet for the same purpose.
  3. Remember: this is JUST TO AVOID THE AIRPORT. Because it’s a pain, you don’t feel like a complimentary patdown. Hell, the pettier the reason, the better.

Keep in mind this is a one-time rental, not a purchase of a craft you get to keep. It’s not EVEN an asset or investment.

If you haven’t picked up on it, people who will say yes to Offer #1 are “Beachcraft Rich.” People who pick #2 can burn $1.5 Million on a last-minute Lear Jet simply because they don’t feel like enduring the horrors of the modern airport are officially Lear Jet Rich. If you're this rich, congrats on even reading this instead of luxuriating in your customized personal massage pool or whatever it is the obscenely wealthy do in their spare time.

Seriously--you had to be at least Beachcraft Rich (if not cruising up on Lear Jet Rich) to get access to asset protection just a few short decades ago. And it’s one reason I enjoy spilling the secrets of the rich: we live in the modern era. We all have an equal right to the information we’re smart enough to find.

The times of rich families winning alone are over. Welcome to the information age. Our era rewards the good research--even for you, fellow investor.. Now, go enjoy the benefits of your own mortgage company: equity stripping, asset protection, and of course, the priceless joy of liberty from banking-as-usual.

Last Updated: 
July 24, 2019

Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.

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