A note, or a promissory note, is a vehicle that is used to extend credit from one or more individuals or entities to another individual or entity. In other words, it is a way to make/receive a loan.
There are two types of notes:
Promissory notes can be either in first or subordinate positions, and can be purchased from brokers or private parties. Usually, the documentation is recorded at a county recorder’s office, and title to the collateral property is insured as instructed. You can arrange the terms of the note, and the payments will go back into your retirement account.
You can hold mortgage notes or trust deeds in your self-directed IRA, which are ways to invest in real estate without worrying about maintenance costs and vacancies. In these instances, the trust deed investor is lending money to the borrower using real estate property as collateral. If the borrower can not keep up with the loan, the property will then be transferred to the IRA.
Your IRA can also purchase or sell portions of mortgages. Your retirement account holds an undivided interest in a portion of the note, and receives the proportionate amount of income due under its terms.