In a previous blog post I spoke about using your IRA funds to be the bank and loan out your Self Directed IRA Funds. Another option which is similar to this is investing in Trust Deeds. Below is a little bit more about what a Trust deed is and how it works:
I. What are Trust Deed Investments?
"Trust Deed" refers to a private individual making a loan to another individual with real estate as collateral. The real estate may be a house, vacant land, an apartment building, a commercial property or any other piece of real estate.
II. Where does the "Trust" and "Deed" come in?
A "trust deed" is nothing more or less than a deed to the property which is given to an independent third party who both the borrower and lender instruct what to do in the event of the payoff of the property or a default. The trusted person is, nowadays, virtually never a natural person, but a corporate trustee which literally holds the deed in trust. Upon payoff of the note, the trustee is instructed to record a document called a "Reconveyance" which literally "reconveys" the deed back to the borrower. On the other hand, in the event of a default, after the trustee is convinced that the proper legal steps have been taken, the trustee conveys the title to the property to the lender.
III. What are the Benefits of Trust Deed Investing?
- Secured By Tangible Property - Trust Deed investments are secured by a tangible property you can go and look at, "kick the foundation" and decide whether or not you would like to own if you have to foreclose.
- Safety - Low Risk As long as there is value in the property, your investment is secure. We never loan more that 65% of the value of the property, so you are assured that if it is necessary to foreclose, the property will be able to be sold to recoup the investment and make a profit.
- Great Returns - Depending on the type of deal, the borrower and the property, returns of 9-18% are typical. Past performance is no guarantee of future performance, and your returns may vary.
- Familiarity- Many people are familiar with real estate investing because real estate ownership is so common. Stock transactions which produce the kinds of returns one can find in trust deeds often involve derivatives and complex financial instruments most people just don't understand, or want to spend the time researching.
If you are new to self directed IRA investing hopefully you are beginning to see the potential that investing with your IRA can have. There are so many endless possibilities for self directed IRA investing. If you are interested in trust deed investing or just need more information about investing with your IRA please comment below or contact us at Accuplan Benefits Services.
Author: Nick Barker