Lending funds is one way smart investors earn income. While everyone knows you can personally loan someone money for anything, did you know you can loan money from your IRA in the same manner?
Extending private loans and mortgages using a self-directed IRA is a popular way clients of Midland IRA earn income for retirement. We have seen loans to individuals and even to businesses or other entities that are seeking funds for anything from home mortgages to capital to expand business growth or start-ups.
If you decide to invest in private lending options, there are a few things you need to know right off the bat. You are able to personally vet the people you want your IRA to work with in these transactions, and you choose the terms of the loan (interest rate, length, etc.) You also have the option to choose between extending secured or unsecured notes.
Unsecured can be a great way to grow your IRA funds because you can demand a higher interest rate than secured notes. However, since this type of investment is considered high risk, you want to be sure you do this type of business with someone you trust or with a reputable company. So, the upside to this type of investment is that you are able to propose a higher interest rate, which will give you a higher return. The downside is that you run the risk of losing out if the borrower decides not to pay you according to the terms. It is recommended that you seek legal counsel before pursuing this type of investment.
Secured notes are another great way to grow your IRA funds and are much less risky than unsecured notes. Why? Because these types of private notes and mortgages are secured with a tangible asset, such as real estate or personal property. The upside to secured note is that you have a security instrument as collateral in place so that, in the event the borrower decides he does not or cannot pay you back, you can take the property from them and sell it to recoup your investment. Still, as with unsecured notes, you want to be sure you are doing business with someone you trust. You should also seek legal counsel before pursuing this type of investment.
Private notes and mortgages offer plenty of opportunities for you to grow wealth in your retirement account. If you’d like to learn more, please contact Midland IRA. Our team is always happy to help others learn about the diverse investments permissible in self-directed retirement plans.