Using IRA Funds to Invest in Hard Money Loans
Many of the loans that we put together are funded by individuals using IRA funds. Investing in hard money loans offers better returns than many other investments, and is also one way you can diversify your holdings.
Current hard money conditions present a unique opportunity to those investing in deeds of trust. The recent downturn in the real estate markets was one of the largest downturns we’ve seen. Values are still depressed. While this is not great for the average consumer, it does provide good conditions for trust deed investors.
With the markets down and the steep losses they left many with, hard money loans are not nearly as aggressive as they were five years ago. Typically speaking, most hard money loans are being written at 50-60% loan to value. This is a loan to value based on current value, not the value of five years ago. If you believe the real estate markets are at or near bottom, this leaves a nice cushion of protective equity to secure your investment.
In addition to lower loan to value ratios based on lower values, the people borrowing hard money these days are more credit worthy (generally speaking). It is not uncommon for people with excellent credit to still need hard money to finance their real estate projects. With better borrowers, lower loan to value ratios and a depressed real estate market within which to base a valuation on, you can still earn a double digit return on funds invested.
The average IRA custodian will not be set up to allow investments of this nature, but there are a number of self directed IRA companies that are set up in this manner. Investing in real estate trust deeds is not for most investors. Those who do choose to invest in this manner should seek legal council and have a good understanding of the process as there are strict rules to which you must adhere.
For those who are comfortable with investing in hard money loans, though, it can be a very rewarding experience. Investing locally, you can personally visit each property you choose to invest in personally. Finding local hard money lenders to work with is one way you can find transactions that may fit your investment strategy and goals. Regardless of the type of property or location you wish to invest in, chances are good that there is a transaction that will fit the bill.