Anyone doing small sdira lending?

Question

I have an IRA with about 27k in it. Its not my primary retirement investment vehicle. I am currently working with a friend who is planning on opening an sdira with one of the custodians listed on bp. His has about 150k in it and I'll be borrowing from him to fund deals.

I was thinking of converting my small ira to an sdira and doing some lending. I was thinking of funding rehab costs or transactional lending.

anyone doing that here? What's been your experiences like

Levi Rudder · Answer

Lending is ok, but requires a decent amount of legwork per transaction especially if the collateral is only the RE being rehabbed as in your describe transaction. In my opinion it would be better suited invested in something that will get you good returns without having to continually work to put your money out. With my smaller IRA accounts I will put them into residential notes that I get cashed out between 12-36 months and just rinse and repeat. That is also what we do with our non IRA money as well and we do it full time.

Account Closed · Answer

If you're interested in exploring your opportunities in crowdfund investing, check out The Real Estate Crowdfunding Review and YieldTalk. I have taxed money (but not self-directed IRA money) at risk on some of these sites. Many of these sites, but not all, allow retirement account investing through an SDIRA custodian. Those that allow retirement accounts have a favorite SDIRA custodian they recommend, but I understand they'll work with any SDIRA custodian.

Ian Ippolito · Answer

Thanks Account Closed, There are lots of options if you choose to lend money. First, you can choose between (in order of ascending execution risk but also ascending order of projected return) loaning on acquisitions (net maybe 6 to 7%), light to heavy rehab (maybe 7-9%) and construction (maybe 9-12%). You can choose to invest in individual notes, or you can invest in a fund that might be diversified into hundreds of notes. Personally I like the funds because if something goes wrong with one note, it isn't going to kill my entire return. Additionally you will have to decide between judicial and nonjudicial states, what LTV (loan to value) you feel comfortable targeting based on your risk tolerance, etc.. And finally the options are different depending on if you are accredited (lots of options) or nonaccredited (much more limited). If you'd like any specific advice, and would rather not post information on the thread, feel free to PM me.

Oleg Shalumov · Answer

@Dmitriy Fomichenko

Levi Rudder · Answer

@Jeremy England Yes this is done though our company and others. "Notes" are a loans on a property and in this instance it is given either to an owner occupant or a buy and hold investor. We only focus on buying the 1st lien position Notes ourselves even though there is a 2nds market for note buyers as well. So what we do is we buy a non-performing note from banks, hedge funds, and private sellers at a discount and then work with the borrower with the hope they can start paying again and stay-in or keep their property. It is very similar to buying an apartment with value add opportunities and fixing it up and then you have the opportunity to either sell the apartment and rinse and repeat or you can keep the apartment for continuous cash flow that gives you a higher return than buying an asset that has already been optimized. It is the same concept with buying non-performing notes.Please reach out to me if you would like to discuss this in more detail and I would be happy to spend the time and answer any of your questions.Levi @noterehabber .com

Logan Hassinger · Answer

@Jeremy EnglandIf you would like to discuss options send me a DM and we can schedule a call to see if we can help.

Odie Ayaga · Answer

Same boat as Levi. I had a similar amount of retirement savings to invest and I used it to purchase a couple notes.

Jeremy England · Answer

Thats a good point i didnt consider. Being in a second or further lien position is risky. Would def require higher rates and careful underwriting.

Jeremy England · Answer

Im not schooled on this at all really. Residential notes? What are they and Is this done through a company?

Robert S. · Answer

My biggest issue in lending out construction money comes up when establishing my lien position. A higher interest rate compensates for the risk of being far down the line. How much interest is enough to make you comfortable with the loan? An important question would be, how much interest will you get paid, and how much return does that translate to over a given time period? If the numbers aren’t enough to justify the weak lien position, @Levi Rudder offered up a pretty decent solution with his notes investing strategy. Perhaps he is taking on new investors as clients.