Investing with your Self-Directed IRA – Private Money Lending
Another Wealth Building Strategy
Using a Self-Directed IRA to become a private money lender is just another wealth building strategy. Being a private money lender allows you to passively invest your funds into real estate – but instead of owning the property, you are the lender!
There are some serious steps you need to take to safely lend your money from a self-directed IRA. As a private money lender, you will still need to:
- Conduct Due Diligence
- Vet The Borrower
- Have the right documentation in place to secure your asset
Since 2018, I have been helping people invest with their Self-Directed IRA to become private money lenders. I have generated over $300,000 using Self-Directed IRA monies from other people for Private Money Lending either in assets purchased or payments to account holders.
This might not sound a lot to people who are generating millions
BUT… it makes a difference when the people I have helped become private money lenders have on average $16,000 in their account balances! Meaning they have been growing their small dollar IRA by the wealth building strategy of private money lending!
To give you an example….
The very first time I used my Self-directed IRA – I purchased a property using $5,000 from my Traditional Right IRA – from that most famous deal, that I have been featured in Forbes, multiple podcasts and Ken Corsini’s Profit Like A Pro (I am Chapter 12!).
I have gone on to help multiple people learn this wealth building strategy and grow their retirement accounts by becoming private money lenders. It takes time to:
- Vetting Process for property and borrower
- Structure the deal correctly
- Ensure the right paperwork is in place to protect your asset
Being a private money lender is a great strategy to grow your self-directed IRA. Your self-directed IRA must be with a custodial company that allows these types of investments. The types of SDIRA’s that can be used for private money lending:
- Traditional IRA
- Roth IRA
- SEP IRA
- HAS (Health Savings Account)
- Educational – Cloverdell
- Checkbook IRA
The great news, you can start investing with as little as $100 in anyone of these accounts.
My focus since 2018 has been to help people with less than $50,000 in their SDIRA:
There are a lot of account holders (and you may be one of them) that have less than $50,000 in this type of account – the funds are just sitting there, not earning any interest AND you are probably paying fees on top of it to the custodial company.
Since I am based out of the Dallas Fort Worth area, I use Quest Trust Company, but there are many more custodial companies that have self-directed accounts and account holders.
Using your self-directed IRA is…..
ONE type of wealth building strategies that people don't really talk about because they think it's too complicated. I have learned this strategy, and now incorporate the technique into scaling and growing my real estate business!
But the truth is, this strategy can be learned, but it takes the account holder…
Time and Dedication to learn this investing strategy
o To make sure the deal/borrower have been vetted
o To make sure the account holder is protected
o To make sure the correct paperwork is in place
I have found that Private Money Lending…
…is relationship based – you do business with people you know, like and trust
It took me a while to build my list of private money lenders. You have to network, it's on reputation, people have to get to know you, and know that you are someone they can do business with…
There's a lot of vetting as you still need to:
- analyze a deal
- vet a borrower
- paperwork to put in places
Being a private money lender is n not complicated but it is a …..
Process that you have to learn
A great benefit to learning how to be a private money lender is…..
Everything is negotiable:
- Terms – length of lending
- Interest rate
- Points paid
- Grow you account balance tax free/tax deferred
The only rules are you must follow the IRS guidelines, work with a custodial company, and ensure your deals closes with a title company that understands the paperwork required to secure your asset.
Terms for private money lending can be:
- Short Term – six months or less
- Long Term – longer than 12 months
The key is to agree to terms in writing with the borrower, and have in place the documents to ensure your asset is protected
WHAT DO I MEAN: In short how are you going to get PAID BACK!!!!
Consider what I call the turn of your money.
If you are lending your funds in your account every six months, you may be subjected to fees for the money to go in and out of your account.
NOTE: This is not considered a distribution, so you will not have penalties/taxes on the money you loan out.
So, you want to make sure that you're not paying more fees than necessary. So as a negotiating point have the borrower pay your fees.
When you are a Private Money Lender,
- Have borrower pay your
- Review the paperwork prior to
Steps to becoming a Private Money Lender:
1. Vet the Deal
c. Who is doing work
d. Exit Strategy
2. Vet the Borrower
a. Level of investing experience
b. How many deals have they done
c. Who estimated repairs
d. Who will be doing the work
e. What is exit strategy
3. First Lien Position
a. Protection of your asses
b. Promissory Note from Borrower
c. How are you getting paid back
d. Worse case scenarios
a. Direction of Investment
b. Promissory Note
c. Joint Venture Agreement (more than one account holder as lender)
d. Warranty Deed/Deed of Trust
As a Private Money Lender, you need to have set process/rules about how you will lend….
Time: Give yourself enough time to ensure paperwork is correct and your asset is protected.
Equity Stake – don’t lend at 100%
Using your Self-Directed IRA to invest in real estate in a just one Wealth Building Strategy that you can learn. Becoming a private money lender allows you to….
- Grow your retirement funds with out having to own property
- Passively invest in real estate