If you are an investor looking to make a relatively safe and secure real estate investment that adds diversity to your portfolio and offers a generous return on investment (ROI), trust deed investing might be for you. We are breaking down everything you need to know about this type of investment and how you can leverage your self-directed individual retirement account (SDIRA) to start maximizing your revenue today.
What Is Trust Deed Investing?
Trust deed investing is a type of real estate investment in which the investor provides financing to a borrower for a real estate purchase. In exchange for the loan, the investor receives secured interest on the property through a deed of trust. The secured interest serves as collateral and gives the investor a stake in the property.
Investors typically earn returns from their trust deed investments in the form of interest payments from the borrower. If the borrower defaults, the investor has the right to foreclose on the property and recover their investment.
Can You Lend Money From Your IRA?
Loans are generally not allowed from an individual retirement account. However, it is possible to use funds from your IRA, without penalty, to purchase real estate. People with a self-directed IRA can lend from their account for a private loan to a borrower to make a trust deed investment.
However, the rules vary depending on the unique circumstances of your particular account, and seeking out professional guidance can help ensure you do not disqualify your IRA or end up owing penalties.
Who Is a Good Fit for Trust Deed Investments?
Investing in trust deeds makes sense for investors with the following characteristics:
- Income-oriented: Trust deed investing is an attractive option for individuals looking for a source of regular, fixed income. They can generally rely on these investments to generate monthly interest payments.
- Risk-averse: This type of investing is not particularly risky, making it a suitable option for investors looking to minimize the impacts of the fluctuating real estate market and help ensure they get their money back if the borrower defaults.
- Experienced in real estate: Someone who is well-versed in the real estate market with capital to spare is typically a good fit for trust deed investments.
Why Invest in Trust Deeds?
Lending from your SDIRA to invest in trust deeds can be advantageous for many reasons, including:
Steady Cash Flow
Trust deeds can be an attractive investment opportunity because they can provide investors with a steady stream of revenue in the form of interest payments from the borrower. These regular payments allow the investor to enjoy reliable, passive income, which is perfect for individuals looking to ensure a predictable cash flow over the investment’s life cycle.
Secured Investment
Another reason to invest in trust deeds is because they are secured by real property. This gives the investor a tangible asset that can serve as collateral for extending the investment to the borrower.
Investors get a safety net, knowing that if their borrower defaults on the loan, they can recoup their investment by foreclosing on the property. Trust deed investments are typically lower risk than unsecured loans and give those extending the loan greater peace of mind that their money is safe.
Predictability
Since a trust deed investment is secured with a piece of real estate acting as collateral and the borrowers must pay interest on their loan, this type of investment is generally highly predictable and stable for investors. The fixed interest rates associated with trust deeds mean the investor can expect consistent returns over the life of the investment.
This predictability enables better risk management and financial planning. SDIRA owners can maintain a clear understanding of their investment’s performance and stability over time.
Diversification
Another top reason to invest in trust deeds is the opportunity to diversify your investment portfolio beyond traditional assets like stocks and bonds.
Adding a real estate investment to your portfolio can offer unique benefits, including diversifying risk. By spreading funds across various types of assets, SDIRA owners can reduce and better manage their financial risks during times of economic uncertainty. Diversification can prevent investors from making costly mistakes and help them enjoy smoother returns.
Tax Benefits
A key reason to invest in trust deed investments with a self-directed IRA is the tax benefits you can receive as an investor. In most investment scenarios, the government would tax the earnings that the investor makes from their trust deeds. However, carrying this process out through a tax-advantaged retirement account enables investors to enjoy tax-deferred income.
A trust tax advisor can help you better navigate the tax implications of a trust deed investment through your SDIRA.
How to Invest in Trust Deeds With a Self-Directed IRA
There are many reasons to take a loan from your SDIRA for trust deeds. But how do you actually do it? The loaning process can be slightly confusing, especially for new investors who are not well-versed in these strategies. Here are the basic steps for investing in trust deeds with a self-directed IRA:
- The process begins with the borrower completing a promissory note, made payable to you as the private real estate investor. This note will be backed by a deed of trust, indicating that the property is acting as collateral in this situation.
- Next, the borrower will promise to pay off their loan in full and on time, including taking care of monthly interest payments during the predetermined payment period you specified as the lender.
- The borrower will make monthly interest payments directly to your self-directed IRA. This can help you yield a higher return and enjoy a steady paycheck throughout the loan’s term.
Start Investing in Trust Deeds Through Your SDIRA With Accuplan Benefits Services
At Accuplan Benefits Services, we are experts in self-directed independent retirement accounts. We’ve been helping people invest in their futures since 2009 and want to show you how to invest in something other than stocks and bonds.
Our team understands the complicated nature of self-directed investing strategies and will work with you to make strategic decisions about your retirement account.
Are you ready to get started? Contact us to get in touch with our premier retirement team! We’re happy to answer your questions and help you understand the possibilities of your SDIRA.
Our information shouldn’t be relied upon for investment advice but simply for information and educational purposes only. It is not intended to provide, nor should it be relied upon for accounting, legal, tax or investment advice.