Lending Money With Your IRA
More often than not, the first stop for an individual or business that wants to borrow money is a bank or other lending institution.
But, what about those individuals who for one reason or another, cannot borrow from one of these institutions? Some might say that these individuals pose too high of a risk for lending to.
I'll leave that up to you, the investor, but I will however; present you with the other end of the spectrum.
There are actually a couple of reasons that you may want to consider lending money with your IRA.
First off, the terms can be whatever you and the borrower agree on.
That being said, since the borrowers often times cannot receive adequate financing elsewhere, the interest rates tend to be much higher than those offered by other institutions.
Being in the IRA business, I can say that double digit interest rates are not uncommon.
This can be a win-win situation for the lender and borrower.
The borrower gets the loan that they could not have otherwise, and the lender gets to sit back and accept the far above average returns that they negotiated.
Next, (and this is probably the answer to the question that is in your head) there are ways to significantly reduce the risk involved.
One common way to reduce risk involved in lending money with your IRA is to secure the loan with physical property such as real estate or other property.
Once secured, the best case scenario for the lender can actually come to place when the borrower defaults and the lender has to foreclose on the property! Now, instead of receiving the anticipated interest payments, the lender's IRA takes ownership of a property that is typically much more valuable than the expected return.
It should go without saying that if you are considering loaning money to an individual, and the loan is to be secured, you had better be comfortable foreclosing on that individual's property if necessary.
Of course, you can loan money without securing the loan, but you do this at your own risk! Now that we have briefly discussed the basics, I will mention that there are still rules that apply to this type of investment (just like any other investment).
First, an IRA cannot lend money to any "disqualified person".
The term disqualified in an IRA is used to refer to the IRA holder's immediate family (with the exception of siblings) and certain professional associates such as fiduciaries and employers.
If you are wondering whether or not a certain person is a "disqualified person", feel free to contact our office to discuss.
Another thing that you will want to check on when ensuring that you comply with the rules, is your state's rules on how high of an interest rate you are allowed to negotiate.
Your best resource for this question would be a competent attorney.
With this, and any type of investment, it is completely necessary to do your own homework and consult the appropriate professionals when need be.
Also, note that this article is meant solely to be a starting point, and if interested in loaning money with your IRA, you have more research to do.
If you have any IRA specific questions, we would be more than happy to help.
But, what about those individuals who for one reason or another, cannot borrow from one of these institutions? Some might say that these individuals pose too high of a risk for lending to.
I'll leave that up to you, the investor, but I will however; present you with the other end of the spectrum.
There are actually a couple of reasons that you may want to consider lending money with your IRA.
First off, the terms can be whatever you and the borrower agree on.
That being said, since the borrowers often times cannot receive adequate financing elsewhere, the interest rates tend to be much higher than those offered by other institutions.
Being in the IRA business, I can say that double digit interest rates are not uncommon.
This can be a win-win situation for the lender and borrower.
The borrower gets the loan that they could not have otherwise, and the lender gets to sit back and accept the far above average returns that they negotiated.
Next, (and this is probably the answer to the question that is in your head) there are ways to significantly reduce the risk involved.
One common way to reduce risk involved in lending money with your IRA is to secure the loan with physical property such as real estate or other property.
Once secured, the best case scenario for the lender can actually come to place when the borrower defaults and the lender has to foreclose on the property! Now, instead of receiving the anticipated interest payments, the lender's IRA takes ownership of a property that is typically much more valuable than the expected return.
It should go without saying that if you are considering loaning money to an individual, and the loan is to be secured, you had better be comfortable foreclosing on that individual's property if necessary.
Of course, you can loan money without securing the loan, but you do this at your own risk! Now that we have briefly discussed the basics, I will mention that there are still rules that apply to this type of investment (just like any other investment).
First, an IRA cannot lend money to any "disqualified person".
The term disqualified in an IRA is used to refer to the IRA holder's immediate family (with the exception of siblings) and certain professional associates such as fiduciaries and employers.
If you are wondering whether or not a certain person is a "disqualified person", feel free to contact our office to discuss.
Another thing that you will want to check on when ensuring that you comply with the rules, is your state's rules on how high of an interest rate you are allowed to negotiate.
Your best resource for this question would be a competent attorney.
With this, and any type of investment, it is completely necessary to do your own homework and consult the appropriate professionals when need be.
Also, note that this article is meant solely to be a starting point, and if interested in loaning money with your IRA, you have more research to do.
If you have any IRA specific questions, we would be more than happy to help.
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