You Can Loan Your Retirement Dollars??
This picture is just a fun one of Veronica picking up a whole kitchen in our horse trailer. And yes, she can back that thing into a narrow driveway like a pro! I can’t wait to write about the details of this project in the future but for now, on to this week’s post:
Loan Your Retirement
Did you know that you can lend money from your IRA? That’s right. We borrow from people’s IRA regularly. And we pay well! So if you have an IRA and want to get involved in real estate, you could be more passive getting started by lending money from your IRA. In fact, we are about to start lending money from our IRA to other investors because we have seen the benefit that our lenders are getting from these solid returns with houses as collateral (worth more than they are loaning). This means that if the borrower fails to perform, the lender can take back the house. And the IRA can own property too! I can’t loan money to myself so I will loan it to friends in the business and continue to borrow from other people’s IRA.
Why would I risk my retirement?
You may think, why would I give my hard-earned retirement to someone to handle? The answer, for me, is that I wouldn’t just give it to anyone. I’d only give it to someone with a track record of success or with plenty of money set aside for overages or unexpected expenses, and only on properties I wouldn’t mind owning in a worst case scenario. We never borrow the full value of the home. We borrow (and will lend) a portion of the value. Maybe 65-70 percent of the ARV (after repaired value) is the max loan to value. This means that if we had to take it back, it would be worth more than the amount loaned and we would have the option of doing any needed renovations and selling it or keeping it as a rental inside the IRA. These are some of the ways to mitigate our risks; and our lenders risks.
Returns and Collateral
The benefits are numerous using this method to get started. One benefit is the obvious high rate of return on your investment dollars (often double digits). The other is the loan being tied to real property instead of stocks and bonds etc. that you have no control over. You also could work out an agreement with the borrower to allow you to shadow them on the project to learn a ton. Then do it all over again. If you have retirement funds sitting with a traditional brokerage, you’ll just transfer them to a self-directed custodian such as Quest Trust company, or any of the other companies doing this. They will help you make the transaction and the borrower can pay all the fees.