Solo 401k Plans Investing Guide: Why Invest in Mortgage Notes?

Mortgage notes attract many investors, especially because notes are backed by real estate and offer higher returns against traditional investments. The IRS allows investing in real estate through Solo 401k plans, allowing average investors to enjoy tax-deferred growth. If you own a Solo 401k retirement plan, diversifying it with mortgage notes is an option you can bank upon, while minimizing the risks. Unlike traditional real estate investments, you will not be responsible for the maintenance of the property, and still receive regular repayments from the mortgage borrower.

4 Reasons to invest in mortgage notes with Solo 401k plans

• Secured by collateral - Mortgage notes are promissory notes, obligating the borrower to repay the loan, and in case of failure, the mortgage note holder can practice the rights to foreclose the property. In short, your investment is safe and it is much easier than maintaining a rental property.
• Control over investment: When you add mortgage notes to Solo 401k plans, you earn returns regardless of the location of the property, maintenance or repair, and vacancies. Further, the IRS allows you to sell and refinance along with the option to practice Collateral Assignment to borrow against the note.
• Stable Income: One of the primary reasons to buy rental properties is its regular cash flow. Mortgage notes tend to offer the same. You will receive monthly repayments from the borrower, although make sure to redirect them to your Solo 401k plans. In addition to it, you can buy mortgage notes at a discounted price, hence, booking your profits while purchasing these notes.
• Hold multiple notes: Being a small business owner or self-employed individual, finding time to maintain even a single property could be a difficult task, let alone managing multiple properties. You might even need a property manager for managing multiple properties, costing you around 8-12% of the monthly rental along with any other expenses. On the contrary, you can easily manage multiple mortgage notes and unlike property managers, loan companies may charge up to $100 one-time fee along with monthly maintenance fee of less than $25. If you have done your due diligence while purchasing these notes, you will easily match the returns offered by rental properties without all the hassle.

The key is to ensure that your returns or repayments go back to the Solo 401k plans, allowing tax-deferred growth of the investment. It is important to note that the feature to invest in mortgage notes might vary from one Solo 401k provider to another, so make sure to choose a plan that offers real checkbook control feature.