Most people assume or believe that IRA investments are limited to stocks and bonds but that’s not true. IRAs can be used to invest in a wide variety of investments including real estate, mortgages, private placements, limited partnerships, private lending and many other types of investments. So how can you use an IRA for private lending and enhance your returns? There’s not much you need to do—simply set up a self-directed IRA, vest the note for private lending, sign custodian agreements to gain checkbook-control, close the transaction and coordinate with the loan service to send payments.
Making private loans with an IRA
Private lending using an IRA can be done by purchasing a secured or unsecured promissory note, mortgages, or deeds of trusts. A small lender who makes a loan and needs to recover the money lets an investor use liquid assets or cash in a self-directed IRA to purchase the promissory notes along with payments. In such a situation the lender is lenient and often willing to sell the note for less so the IRA holder receives both the interest and a certain amount of principal as well.
One more lucrative option to lend money to an organization using a promissory note is with collateral where the collateral is the company’s stock. The risk with this secured note is that the value of the collateral is directly impacted by the success or the failure of the company that has issued the note.
Other investment options for private lending include:
Bridging loans to companies that seek debt finance
Residential and commercial mortgages
Equity participation loans
Microloans for small businesses
Your self-directed IRA also lets you set your own origination fees and rate of return while letting you turn your retirement nest egg into a bank. Marketplace lending is another great way to do private lending using a self-directed IRA.
The upsides of using a self-directed IRA as a lending institution
Improves the potential of your retirement reserve
All the gains are tax-free
The returns are excellent
The potential for future profits is maximum
When loaning your retirement funds for a mortgage, you get to secure the loan using the same property so even if the mortgage defaults, you get possession of the property which can then be sold or given on lease. Additionally, all your gains are completely tax-free if you are leveraging a self-directed IRA. However, before using a self-directed IRA for private lending be sure to consult a financial advisor and ensure the investment gives you excellent returns.
(Featured image by DepositPhotos)
DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation for writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.
The crowdfunding equity platform ClubDealOnline launches ‘Round as a Service’
Thanks to the new service "RaaS", the ClubDealOnline portal will allow to launch capital raising rounds reserved to companies that...
XRApplied helps David take on Goliath: Walmart-style supply chains for SMEs
Retailing giants like Walmart and Amazon have an unfair advantage over their smaller competitors—their supply chains. With centralized databases and...
SparingVision closes a €44.5 million round and gives entry to Ysios Capital
SparingVision has recently closed a financing round during which it managed to raise $52.7 million (€44.5 million). The resources will...
How can HRD pave its way in the evolving world of FinTech?
Indian FinTech companies have consistently shown that the companies are either on Merchant Payment, Consumer Payment, Lending and finance, or...
What types of licenses for the production of cannabis will be granted in Ecuador
Ecuador is committed to be a part of the billion dollars cannabis market and has recently put in place a...
Featured6 days ago
Which fintech company raised the most funds in Q3 2020?
Africa4 days ago
Fruitbox Africa: Frankfurt investor and Siemens to create jobs in Ethiopia
Cannabis6 days ago
Medical cannabis to be reimbursed in France from March 2021
Featured5 days ago
HSBC survey shows investors’ interest in ESG is increasing