Entrust Learning Center > Keyword: notes > Banking on Your IRA Through Lending

Banking on Your IRA Through Lending

By: Glen Mather

IRA Insights

A few years ago, a trio of elderly investors arrived at the reception area of my office unannounced and without an appointment—a relatively rare occurrence. Being a good host, I invited them into my conference room, offered them coffee, and then I placed several Entrust brochures in front of them, describing our self-directed IRA services. I presumed the group had come to learn more about our business so I immediately launched into my normal impassioned message on the power of self-direction by “Unlocking Your IRA.”

No sooner had I started, the lone female jumped up and said “Thank God – you do self-directed IRAs and you are local!” Evidently, the group had been self-directing their IRAs for years, but their administrator’s company had been bought out by a large corporation out of state and they were now frustrated by long delays and poor service. The spokeswomen of the group said, “we have been issuing mortgages from our IRAs for over 20 years, and we don’t want to stop now!”

As Director of the Entrust office servicing east and central Florida, I’ve come to appreciate the passion that some of our clients have for lending their IRAs. There can be many reasons that individuals choose this avenue for their retirement plan investments:

• Easy to Manage: Unlike most real estate purchases lending generally requires minimal management once the loan is in place
  
• Provides Liquidity: While some LLC, Private Placement or Real Estate investments may have a long gestation period, loan payments can be structured monthly, quarterly or annually, providing cash balance that is especially important for individuals that require routine withdrawals or those facing required minimum withdrawals after reaching the age of 701/2 years.
  
• Permits Flexibility of Terms: The IRA holder can create the terms of the note to properly reflect the amount of risk he is willing to take vs. the amount of interest that the borrower is willing to pay. For example, the down-payment or interest rate can be increased based on the strength of the borrowers financial statement or credit rating
• Provides Security: Loans can be secured by first or second mortgages, providing the IRA recourse should the borrower default. In the unlikely event that foreclosure is required, the IRA should pay any expenses in obtaining payment or collection on the loan.
• Can Result in Significant Returns: Our account holders issue first and second mortgages from their IRAs at rates from 8% - 16%, with many charging loan origination fees (points). While some clients locate their own mortgages, many rely on local companies that will match their funds to borrowers, or will aggregate several IRAs into one mortgage. As with all investments that you make, we would suggest that you speak to your legal and financial advisors regarding the structure of any loan that you would issue from your IRA. Many times title companies are happy to provide the basic note and mortgage forms in order for you to get started.
  

I would encourage you to contact your local Entrust office for more information as to the very basic process by which you, too, can become an impassioned lender of your IRA.

Glen Mather, Director of Entrust Administration Services, Inc. (877) 259-3256. Serving eastern and central Florida. www.entrustfl.com

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