Trust Deed IRA Investing
Use a self directed IRA to invest in trust deeds or mortgage notes with your 401(k) rollover or IRA transfer.
If the thought of investing in real estate interests you, but you don’t want the hassles of dealing with tenants and repairs, then perhaps investing your retirement funds in trust deeds or mortgage notes may be something to consider. Using a self directed IRA to invest in trust deeds or mortgage notes can be an attractive option because it allows the ability to earn tax free, passive income in a secured lending arrangement.
A trust deed or mortgage note is a financial agreement between a borrower and private investor in which the promissory note is backed by a deed of trust recorded on the property. The borrower executes a note payable to the IRA owner and promises to pay a certain interest rate on the loaned money, plus repay the principal amount within a specific time frame. The monthly income from these payments may generate a higher-yielding return to your IRA in the form of monthly income. In the event the borrower defaults on their loan obligations, the IRA receives claim to the property once the property goes through foreclosure. But, while all investments involve risk, trust deeds or mortgage notes may offer an IRA owner the opportunity to recoup a portion or all of their original investment through the sale of the property.
Many real estate experts agree that now is a great time to consider investing in real estate. With the current state of the mortgage industry, foreclosure and short sale opportunities are readily available that may provide excellent opportunities for private lenders.
Using self directed IRA funds to invest in trust deeds or mortgage notes can sound tempting, but, with any investment, it’s important to understand the federal rules and regulations before doing so. It’s even more important to make sure the investment would not be a Prohibited Transaction. As always, you should consult with your tax, financial and legal advisors before deciding to invest in trust deeds using a self directed IRA.
To learn more about what’s required to invest in trust deeds in a self directed IRA with SDIRA Services, download our Private Debt Investment Checklist and Forms or call us at 866.928.9394.
Now, today's investors can take charge and have more control over their retirement savings. Select the Request Information button or read the topics below to learn more.
- How Your IRA Can Invest in Trust Deeds
- What You Should Know Before Investing
- Quick Reminders for Trust Deed Investing
- Open a Self Directed IRA
Different types of real estate can be held in the form of a trust deed or mortgage note including, residential real estate (single family homes, duplexes and apartments) as well as commercial property. Regardless of the type of property, there are three basic methods of trust deed investing:
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You find the prospective borrower on your own or use a broker to find the loan for you. When held in an IRA, you must appoint a servicing agent to handle your loan servicing needs. |
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You invest with multiple investors, often on a larger loan, and each investor receives a proportionate share of the interest payments. When held in an IRA, you must appoint a servicing agent to handle your loan servicing needs. |
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You invest in a fund, issued under an offering memorandum, which is managed by a professional lender. The manager does all the work of finding the loans, underwriting the deals, performing due diligence, assessing the risk, servicing the loans and distributing payments to the investors. |
There are pro’s and con’s for each method– so make sure you understand them and determine which method works best for you.
Investing IRA funds in trust deeds is not for every investor and there are certain rules and regulations which you need to understand before considering this type of investment. Fundamentally, you should understand that there are transactions that are prohibited between an IRA owner and certain individuals or entities called “disqualified persons”.
Prohibited transactions are described in detail in IRS Publication 590 and Internal Revenue Code Section 4975.
Investors are encouraged to consult with their tax and/or legal advisors to ensure the transaction does not violate any of the prohibited transaction rules. If a prohibited transaction occurs, it could disqualify the tax-advantaged status of your IRA, resulting in substantial taxes and potential penalties.
All investments, including trust deeds should be purchased by Self Directed IRA Services and held in the name of: Self Directed IRA Services, Inc., Custodian FBO (Account Holder’s Name) IRA # _____.
You can transfer an existing trust deed in-kind as long as it is held in another IRA in your name. Simply provide the requirements shown on our Private Debt Investment Checklist and Forms with your completed and signed IRA Transfer Request form.
All income should be made payable to and sent directly to the IRA or to your debt servicing agent.
We require that you have a debt servicing agent to provide the duties outlined in our Debt Servicer Agreement. You may act as your own servicer, but if so, you may not collect a fee. This form is included in our Private Debt Investment Checklist and Forms.
After the close of the transaction, SDIRA Services must receive and hold the original promissory note, the recorded deed and the assignments in safekeeping.
It’s easy to invest in a Trust Deeds or Mortgage Notes with a self directed IRA.
Just follow these easy steps:
Download our Private Debt Investment Checklist and Forms and follow the instructions provided.
Open your self directed IRA account.
Fund your IRA with a rollover, transfer and/or contribution.
Find the trust deed or mortgage note you want to purchase in your IRA and provide the items outlined on our Private Debt Investment Checklist and Forms. If transferring a trust deed in-kind from another IRA, simply provide the items shown on the Checklist with your IRA Transfer Request form.
