By J.P. Dahdah, Founder & CEO of Vantage
Private lending with a Self-Directed IRA is growing in popularity. As an investor, one of your top concerns will be securing your money. While strong and consistent cash flow will provide your return and often drive an investment, security is a key consideration.
How you structure the loan from your Self-Directed IRA is up to you. You and the other party determine and agree upon the interest rate, the length of the loan, the repayment terms and whether or not you will require an asset to secure the loan. The money is then loaned from your IRA (there are no penalties or taxes for doing so) and the repayment amount, plus interest, is deposited back into your Self-Directed IRA on the timeline agreed upon in your contract. Remember, the payments…whether monthly, quarterly, etc., must be written to your Self-Directed IRA and sent to your custodian for deposit into your account. The return on your investment is the interest you charge for the loan and is considered a tax-deferred gain.
How to choose secured or unsecured:
A secured loan is one in which there is a property or asset that guarantees the loan. This means that if the borrowers default on any payment, the lender (your Self-Directed IRA) has a legal claim to that property or asset. In the case of property, some investors prefer not to foreclose immediately because of the tedious process involved and the costs. Most would rather allow for some recovery period for the borrower or for the borrower to work out some repayment option, before taking the final step of foreclosure.
An unsecured loan, does not offer security, but allows the application of a higher interest rate due to the increased risk involved.
When choosing to invest via private lending with your Self-Directed IRA, you will need to find deserving borrowers who are committed to meeting their repayment obligations in a timely manner.
For more information on how you can discover your IRA investing alternatives, contact our team at (866) 459-4590 or ClientService@VantageIRAs.com.