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: