Does anyone use an SDIRA to do Note Investing

Question

Does anyone use an IRA to invest in Real Estate Notes. If yes, how has been your experience and what kind of returns are you getting. Is any one of the SDIRA companies better than the other in your experience.

Beth Johnson · Answer

I private lend using my SDIRA and the biggest need from a custodian, aside from stellar and prompt customer service when you have emergent questions, would be for full checkbook control. It makes the process for funding a deal so much faster. However, you need to know what you are doing so you don't screw things up since you are personally handling the entire transaction. The nice thing about custodians who don't allow checkbook control is they handle the transaction for you; meaning when you fund a deal, they will require a full set of signed docs typically and then fund the deal on your behalf after received. They make sure you don't do stupid stuff but it adds on a considerable amount of time when you talk about funding private deals where the borrower expects funds within a few weeks (2-3+ days added onto a deal AFTER the borrower signs can be very restrictive from a borrower standpoint).

My first two private lending deals with my SDIRA both went into default scenarios. Each one of them paid off later than anticipated (about 18-24 months rather than the initial 12 month terms) but paid 24% default interest and all late fees in the end. With a healthy protective equity buffer around 60-65% LTV, I was able to secure my principal amount so I wasn't concerned.

By the way, I used Broad Financial to set up my account and their sister company Madison Trust is the custodian. Great company and really solid customer service.

My first two private lending deals with my SDIRA both went into default scenarios. Each one of them paid off later than anticipated (about 18-24 months rather than the initial 12 month terms) but paid 24% default interest and all late fees in the end. With a healthy protective equity buffer around 60-65% LTV, I was able to secure my principal amount so I wasn't concerned.

By the way, I used Broad Financial to set up my account and their sister company Madison Trust is the custodian. Great company and really solid customer service.

Rebecca Parker · Answer

I agree with Jerel. Finding the right custodian that will not only hold these types of assets in your IRA but also meet all your other needs will be your biggest task.

Jerel Ehlert · Answer

I've drafted private lending docs for SDIRA account holders.  Seems like the biggest determinant is finding a custodian willing to accept this asset class.

Dmitriy Fomichenko · Answer

@Mark Servin

Invested in several dozen notes with my retirement plan over the years, I think it's one of the best investments for self-directed IRA. I like it for 3 main reasons:

• Passive (just be sure to do your due diligence upfront)
• Low risk, I usually lend at around 60% CLTV (I've done both 1st and 2nd position notes)
• Nice return (most of my notes were over 10%)

Many of those required quick funding so you may find having a custodial on the middle being a challenge, consider Checkbook IRA.

Rene D. · Answer

Hey @Mark Servin, I can't comment on your question but I have a note question. Are you using a company to buy notes? Have you heard anything on BrightPath Notes?

Rebecca Parker · Answer

Hey Mark, I personally use my SDIRA for private lending, but I know a LOT of my colleagues who prefer to use their IRAs for note investing share the same custodian. I have found that some SDIRA companies take a long time to process documents (1-2 weeks sometimes), whereas others, like mine, can process in as little as 24-48 hours. I know turn-around time is a big deciding factor for many real estate and note investors. Not only that, but the level of experience is something you might want to shop around for, too. Although most SDIRA custodians will advertise the ability to fund and hold real estate and other RE focused assets, not all of them understand these deals or their processes the same. I would recommend looking around for the custodian that offers education (videos, blogs, tutorials, etc) on the subject; this will give you confidence they know what they're doing! You might even find some that some even have specific departments created just to handle note investing.

Does anyone use an SDIRA to do Note Investing

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