Investing IRA in trust deeds or mortgage notes

    by Aditi Bansal

Updated on Monday, May 08, 2017

IRA funds are usually invested in stocks, bonds, money markets and mutual fund. However, it can also be invested in the real estate industry. Mortgage notes, trust deeds, promissory notes and private bonds or stocks.

tags  #Investing IRA  #Trust Deeds #


Do you hate the irritations of dealing with tenants and repair? And still interested in investing in the real state? Investing your IRA funds in trust deeds or mortgage notes may be a good idea. Utilizing a self-directed IRA to invest in mortgage notes and trust deeds can be an option. It enables the capability to make tax-free, passive income which is a protected lending agreement. It can be very beneficial to buy your favorite and safe investment with the IRA funds to evade capital gains taxes.

Trust deed/ mortgage note

This is a financial agreement between commercial hard money lenders and borrower whereby a promissory note is supported by a deed of trust recorded on a property. The borrower executes a note that is payable to the IRA owner and promises to pay a specified interest rate on the money lent. The borrower is to pay the principal amount within a particular time frame.

The once-a-month revenue from these payments may produce a higher yielding return to your IRA inform of monthly income. The IRA obtains claims to the property once the property goes into a foreclosure if the borrower defaults on the loan commitments. Most investments consist of risks. However, trust deeds may offer an IRA owner the chance to recover a portion or all their original investment by selling the property.

Due to the present state of the mortgage industry, foreclosure and short sale chances are readily available that may offer outstanding prospects for commercial hard money lenders.

Investing IRA in mortgage notes or trust deeds can be attractive. However, it is essential to understand the federal rules and regulations before investing. It is also vital to make sure that your investment is not a prohibited transaction

How Your IRA can participate in mortgage notes

Various types of real estate can be held in the form of mortgage notes. This may include residential property as well as commercial property. There are three basic methods of trust deed investing regardless of the type of assets.

Pooled mortgage funds: This is where you invest in a fund that is issued under a note managed by a qualified commercial hard money lender. The manager does all the task of finding the loans, countersigning the deals, performing due diligence, evaluating risk, examining loans and distributing payments to the investors.

Fractionalized trust deeds: This is investing with many investors, often on a larger loan. Each investor receives a proportional share of the interest payments. You must assign an examining agent to handle your loan servicing requirements when held in an IRA.

Straight/ brokered trust deeds: This is where you find the prospective borrower on your own, or use an agent to locate the loan for you. You must also assign a servicing agent to handle your loan servicing desires when held in an IRA.

Each of the above methods has their advantages and disadvantages. Make sure you understand each and determine which method will work well for you.

This page has a focus on Investing IRA, Trust Deeds was shared by Aditi Bansal.

Share this on: