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Turning Your IRA Into a Mini-Bank

Many IRA owners are turning to private lending as a way to increase returns and provide a secure financial future, and they are using their IRAs for the tax advantages associated with them. View the Private Lending Checklist for and an understanding of what is mandatory for anyone considering this investment.


Why private lending now?

The economic times, uncertainty in the banking industry, and low CD rates, as well as the topsy-turvy stock market, makes secured note investing an excellent alternative.


Who can be a private lender?

A private lender is an individual who you can negotiate directly with on a personal basis to borrow money for real estate investments. These are individuals from all walks of life who do not lend money for a living and may not even know much about the real estate business, but they do have some form of capital (usually from an IRA, 401(k), ESA or HSA) that they can invest.

Lending in your IRA

To use your IRA for lending you must have a self-directed IRA administrator like CamaPlan who is willing to act as an administrator for the asset so there are no taxes or penalties owed. All interest and principle is paid to your IRA and either remains tax-deferred or tax-free, depending on the type of account owned (i.e. Traditional or Roth).

The account is easy to set up; it is similar to opening a bank account. CamaPlan will take care of transferring any amount you direct from an existing IRA at another administrator/custodian. Once the funds arrive, you can initiate your loan.

Benefits to the lender

  • Return on investment – you can enjoy better returns on your money because you eliminate the bank and are paid directly by the borrower. Shorter-term loans are generally at a higher interest rate than longer-term loans.
  • Safety and control – you make the decisions and are in control of the loan terms and parameters, thus minimizing risk.
  • Security – your investment is secured, insured and backed by a hard asset (not like a Ponzi/Madoff/Enron/MF Global deal). You can see it, feel it, and the value will not become zero overnight.
  • Easier than owning – as a private lender, you have less work and liability than owning real estate in your IRA.
  • Diversification – in any investment portfolio, diversification is a key component to assuring future financial wealth. Adding private lending is a good way to diversify.
  • Working your money better – wealth is created through investments as the money works for you, as opposed to you working for the money.
  • Consistent and agreed rates of return – no more guessing or hoping.
  • Low Loan to Value – low LTV means more equity to protect your investment.

Benefits to the borrower

  • Convenience – some borrowers don’t meet the guidelines of traditional lenders, and may have to turn to private investors for funding. Hard money borrowers may include those who have poor credit, who want to buy distressed or “fix-up” properties, who need to close quickly, who are self-employed and cannot verify income, and who wish to buy in the name of a separate corporate or business entity.
  • Move on real estate deals quickly, as if you had cash in your pocket – closing quickly with cash leads to better purchase prices.
  • Buy properties in need of repair, which you can then subsequently improve to develop equity or resell for a cash profit – banks will not lend on distressed assets.
  • Leverage your cash – with a 10% down payment, the borrower can purchase twice the property that you would be able to buy with the same money through the bank. Sometimes, hard money lenders require no down payment at all.
  • Enter real estate markets and invest in property types that banks won’t touch.
  • Develop local relationships – your lender will likely be someone who you can meet and shake hands with. Often, private money lenders have been in your position and can offer valuable advice and contacts in the interest of mutual success.
  • Borrow against the future value of the property – banks consider the purchase price of the property to be its true value.

Want to learn more about the power of private lending?

View the Private Lending Checklist.
Or contact us today at 866-559-4430.