Real Estate Investing:
When You Don’t Want
the Headache of Managing

If you like the idea of investing in real estate, but the thought of dealing with tenants and repairs isn’t appealing, consider investing in mortgages and deeds of trust. Using your self directed IRA to invest in trust deeds and mortgage notes is an attractive option because it gives you the ability to earn tax-free, passive income in a secured lending arrangement. And the best part is, your portfolio is still diversified.

The trust deed or mortgage note is an agreement between a borrower and private lender. In this transaction, the promissory note is backed by a deed of trust recorded on the property. The borrower’s note payable is executed to the IRA owner and stipulates the interest rate and terms of repayment.  Monthly payments to your IRA may generate a high yield return in the form of monthly income.  While all investments involve risk if the borrower defaults on their loan obligations, the IRA can make claim to the property once it goes through foreclosure. You may also have the opportunity to recoup a portion or all of your original investment through the sale.

As with all investments, there are federal requirements you must meet to invest in mortgages and deeds of trust:

  • Direct or Brokered Trust Deeds: Find the borrower yourself, or use a broker. Then, appoint a servicing agent to handle the loan servicing
  • Fractionalized Trust Deeds: Often typical on a larger loan, pool your investment with other investors. Each investor receives a share of the interest payment proportional with his or her investment.  You must also appoint a servicing agent to handle loan servicing arrangements.
  • Pooled Mortgage Funds: Invest in a fund that is issued under an offering memorandum managed by a professional lender.  The managing lender finds the loans, underwrites them, performs due diligence, assesses the risk, services the loans and distributes payments to the investors.

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