12 Days Of Note Investing - Day#4 The Self-Directed IRA Buy

[Tracy Z. Rewey]

Notes are an excellent option for the Self-Directed IRA. This provides access to capital and takes advantage of earning money tax deferred or in the case of a ROTH, tax-free!

This concept allows us to aggressively pursue small balance notes for possible double to triple digit yields backed by real estate. You will find small balance notes under $50,000 are often overlooked by larger institutional investors due to their balance minimums.

Deal Analysis:

This well-seasoned transaction involving an owner-occupied 1971 mobile home with land in Texas provides an excellent example.

The property had sold with owner financing for $32,500 with less than 5% down. After collecting 95 monthly payments the note seller desired to sell the remaining payments for cash today. 

The payer still owed a principal balance of $8,924.50 with 9% interest payable in 25 remaining installments of $392.88 per month.

With a slow payment history, delinquent taxes, and lapsed insurance, there were few interested investors. Satisfied with the equity position against the land value alone, the self-directed retirement account made a net offer of $2,531.

The seller, tired of the headaches and in need of cash, accepted the offer. The Note and Deed of Trust were endorsed and assigned to the Retirement Account Administrator for the benefit of (FBO) the individual retirement account.

By investing $2,531 for the right to receive all future, the self-directed IRA was able to yield a return of over 180%.

The note eventually paid in full, however, if the buyer had stopped making payments the retirement account could have foreclosed and resold the property.