A self-directed IRA is an individual retirement account that gives you complete control over your investment choices. Unlike other IRAs, you’re not limited to stocks, bonds, or mutual funds.
This means you can take advantage of investing in alternative assets – such as real estate, limited partnerships, and gold – with your self-directed retirement account.
With Entrust as the administrator of your self-directed retirement account, you have the power to take an active role in your retirement planning.
Historically, real estate has been a stable investment vehicle for many Americans that can provide both income and appreciation. Various ways to invest in real estate exist, from a more passive strategy, including purchasing property or land that grows in appreciation over time, to more active strategies, including acquiring property, rehabbing it and managing it as a rental or attempting to quickly re-sell the property for profit. In addition, there are many investment strategies surrounding the contracts, options and mortgages tied to real property.
Here’s a partial list of real estate-related investments that you can make when you self-direct an IRA.
- Raw land
- Mobile homes
- Foreign real estate
In addition, there are a number of acquisition and selling strategies involved in real estate investing, including:
- Rehabbing and Reselling
- Foreclosures and REO’s (real estate owned)
Real estate can be an important part of a balanced investment portfolio, providing a tangible asset that can provide ongoing income and appreciate in value. As with any investment there are risks, and inexperienced real estate investors should consider the ongoing costs to buy, manage and sell real estate, the time requirements to manage, the complexities of real estate contracts, titles, insurance, etc., and the cyclical nature of the market.
Promissory notes offer individuals with additional investing options, and another way to diversify their investments. A promissory note is a debt-based financial instrument that involves one party making a written promise to repay a debt under specified terms. These specific terms usually involve a declared timeline or series of payments, or funds that are due upon demand. They could also include an interest rate and written consequences that will happen in case the borrower defaults.
The difference between one of these notes and an IOU is that an IOU only specifies the amount owed, a promissory note includes the amount owed, the steps needed to pay back the sum, and consequences that will ensue if the requirements are not fulfilled when payment is made.
These debt-based financial instruments can be issued by individuals or firms that are willing to lend out the money under the negotiated conditions. Companies can utilize promissory notes as an alternative method for obtaining credit when they have exhausted the other available options. Corporations have the ability to obtain various types of credit through myriad means including bond issues and loans from banks.
Promissory notes issued by a corporation generally carry higher default risk than bonds sold by the same organization. To compensate for this greater risk, a note would likely offer a higher return than a bond in order to entice investors.
Debt-based financial instruments such as these are only offered to savvy investors who have the needed resources to handle the risk and cost associated with notes such as these. An owner of one of these notes can resell the financial instrument or alternatively, sell the payments to another purchaser. Notes such as these that are resold are frequently done so at a discount to the instrument’s original face value – to compensate for the impact on inflation on future payments.
Some people who face challenges in obtaining mortgages can utilize alternatives in order to buy real estate. The tough credit requirements imposed by many lenders have given rise to the existence of seller financing. One way for people who can’t qualify for a mortgage to get a house is to utilize promissory notes.
The party that has the mortgage continues to hold the contract with the lending institution (taking it back) and the buyer signs a promissory note indicating that he will pay the price of the house plus an agreed-upon interest rate. The note will also specify the number and frequency of installments. This situation can result in a positive outcome for both the buyer and seller of the property.
For more information, please visit our Entrust Learning Center and utilize our many resources to help you stay on track with your investments.
Gold & Silver Bullion
Thanks to significant advertising by precious metals dealers, it has become widely known that gold, silver, palladium bullion as well as certain coins can be purchased with retirement account funds. In fact, IRC Section 408(m) sets forth a list of approved precious metals and coins that are not considered “collectibles” and may be purchased with retirement funds. Even though, IRC Section 408 generally deals with IRAs, section (m) applies to both IRAs and 401(k) plans.
By using a self-directed IRA or Solo 401(k) plan to purchase IRS approved precious metals or coins, one is able to seemingly better diversify their retirement portfolio as well as generate tax-free gains on the sale of the metals or coins. More importantly, if you have full checkbook control over your Self-Directed IRA LLC or act as the trustee of your Solo 401(k) plan, the purchases can be made on the spot as fast as you can write a check