Over the last year, our industry has seen a growing number
of retirement investors looking to use self-directed IRAs to
engage in private lending transactions in order to improve their retirement
fund potential. This is because a self directed IRA gives you the option
to loan money, similar to a bank. You choose the borrower, amount, interest
rate, length of term, payment frequency, and amount.
IRAs can issue both secured and unsecured loans.
Secured loans are backed by collateral to ensure repayment of the loan
amount plus interest. Unsecured loans are typically offered at higher
rates than secured loans and have lower borrowing amounts because they are
associated with higher risk and not backed by collateral.
Many investors choose to loan money through their IRA to
individuals looking to purchase a home. When loaning IRA funds for a mortgage,
you have the opportunity to secure the loan with that piece of property.
This means that if the mortgage defaults, your IRA takes possession of that
property and you can decide to sell it or lease it out, providing you with
additional funds within your IRA.
One major advantage of private lending with aself-directed IRA is that all gains generated by the investment are
tax-deferred until a distribution is taken (Traditional IRA distributions are
not required until the IRA owner turns 70.5). However, with a
self-directed Roth IRA, all gains are tax-free.
Private lending offers the opportunity for excellent
investment returns today and the potential for even more profitable
opportunities in the future.
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