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Can You Use Your IRA To Buy Notes?

Investing in notes secured by real property can be a great way to diversify your retirement portfolio in a self-directed IRA or Solo 401(k) plan. There are various types of notes that can provide attractive returns, including longer term private mortgages or short-term loans to flippers often referred to as hard money lending. Because the loan is secured by real property, there is a certain degree of stability and security, and the returns can be consistent, with interest payments coming in each month. Non-performing notes are another facet of this asset class, and represent an investment class with a higher risk factor, but a corresponding potential for exceptionally high returns. (credit

When investing in non-performing notes with your Checkbook IRA or Solo 401(k) plan, using a 3rd party loan servicing company is the best way to go. There are many note servicing companies that can help you execute any of the above strategies to turn a profit from your non-performing note investment. They will have the right legal and title infrastructure in place, and be familiar with the laws of the state where the property is.

Even if you have the capacity to work the process yourself, perhaps with the guidance of your attorney, it is better to use a 3rd party servicer when investing with a self-directed plan. Doing so eliminates any concerns that you may be engaging in a prohibited transaction through providing goods or services to your plan. While investing in a single note and negotiating with the borrower on a modification may not create any issues, committing the time and expertise required to execute a large number of such transactions, or directly handling more complex events such as the foreclosure process could very well be viewed as providing services to the plan.

As with any investment, there are details you need to understand in order to minimize your risks and maximize your profits. If you are willing to commit the time to learning about the distressed notes market and perform diligence on the notes themselves and the providers you choose to work with, these types of notes can be a great opportunity to grow your tax-sheltered retirement savings. (credit

If you don’t want to be burdened with maintenance costs or rental vacancies, you can invest in mortgage notes in your self-directed IRA. You can also be a real estate lender with your IRA funds and help others purchase new properties. You set the terms of the loan, including time frames and interest rates. The payments will go to your retirement account.

There are two types of notes:

Secured notes, deeds of trust, and mortgage notes are basically the same thing, depending on the state that you reside in.

Unsecured notes are not backed by collateral and thus often pose a higher risk than a secured note. Because of this increased risk, unsecured notes are generally structured at a higher interest rate.

In a trust deed, the investor loans money to a borrower using real estate as collateral. The loan is secured with a Trust Deed, which is recorded in county land records against the collateral. The terms of the loan are detailed in the Promissory Note.

Sellers looking to offer financing to potential buyers can have a real estate note created for the transaction. It is important to have your note drawn up by a real estate attorney and that you understand the terms of the note:

1. Open and fund your Entrust self-directed IRA.

2. Find an individual or entity interested in borrowing money from your IRA. The loan must be secured by real estate. (credit the entrust group)

Benefits of Owning Notes in A Self-Directed Retirement Account

Real estate notes can be great assets for self-directed retirement accounts. The benefits include:

• Generate interest income

• Purchase at a discount for increased yield

• Backed by real estate as security

• Less hands-on than owning property

• Licensed third party servicers can manage payments and collections

• Ability to re-work the note, take a deed in lieu, or take the property back through foreclosure in the event of non-payment

• Profits are tax-deferred (or even tax-free with a Roth IRA). (credit

This is a very basic summary of why using your IRA or self directed IRA is a great tool. As always, please be sure consult your attorney or other financial professionals for the best way to use these investment tools. Awanna Holdings, LLC is in no way affiliated with any of the sources credited herein.

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