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Tapping Into Trillions: Using Self-Directed IRAs for Private Funding

With a Self-Directed IRA, you can be the bank and loan on your own terms.

Posted on August 31, 2020

private lending

Whether you’re a first time home buyer, an experienced fix and flipper, or an expert in rentals, one aspect will be present for almost everyone: funding. Investors will always need money for deals and sometimes the traditional bank loans aren’t possible for everyone. Others just prefer the flexibility of being able to work out a deal on their own terms. 

There’s plenty of options available, but private lending by using self-directed IRAs has proven time and time again to be an option many investors seek out when it comes to their real estate or other alternative investments. 

According to a recent study from the Investment Company Institute, $28 trillion dollars were in retirement assets, and of that, $9.2 trillion dollars was reported to be in IRAs alone. With that much money available for use in IRAs, it’s nearly impossible not to be curious about how to use those funds for private funding. 

For lenders and borrowers alike, private loans with self-directed IRAs have provided opportunities for successful deals and have given investors the ability to have options. Whether you’re looking to borrow private funding or loan out your own, here is everything you need to consider when getting involved in a private loan!

Why Private Lending?

As mentioned, sometimes a normal loan from a bank or hard money lender just doesn’t work for unique situations. Especially in a market like real estate where investors are seeking to get creative with their strategies, having an option like private financing is almost necessary. 

With a Self-Directed IRA, investors can choose to loan out their retirement funds on their terms, as decided and agreed upon with the person borrowing those funds. These agreements are usually more customizable than regulated bank loans, and typically the interest works out in favor for the investor, making it a great investment for a self-directed IRA. 

Private loans also give the investors the ability to collaborate when doing the loan. Maybe one investor doesn’t have the ability to loan out the full amount of funds a borrower is needing, but the flexibility of a private agreement makes it possible for two or multiple people to come together to supply the total amount to loan out. This flexibility also comes into play with timing, too. 

Private loans are ideal when needing to purchase property in a short period of time, whereas it sometimes can take a while when applying for a traditional loan. 

Considerations When Private Lending

Just as banks have a certain set of criteria when vetting someone for a loan, private lenders typically do, as well, although the requirements are usually different and much fewer.  Things that a private lender may consider when deciding to lend are the borrower’s credit scores, the investment loan to value ratios, the amount of time the investment may last, and if in the event the money was not paid back, is that investment something the investor would want to own. These are just a few considerations a lender may have. 

As a borrower, it is wise to have a success book (if applicable) and be able to properly present your investment. Usually, when seeking a private loan versus a traditional loan, there is a higher approval rate for borrowers. 

Borrowing from a bank can be time consuming and stressful, but private lending doesn’t have to be. Whether you’re a borrower looking for capital, or an investor with money looking for a good deal, private loans with a Self-Directed IRA have proven to be great investments that are flexible enough to work for everyone. 

To learn more about how Self-Directed IRAs can be a source of private financing, schedule a 1-on-1 consultation with an IRA Specialist by clicking HERE.

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