Creating Your Own Private Financing Source with Self-Directed IRAs

Whether you are a first-time homebuyer, an experienced fix-and-flipper or an expert in rentals, there is always a need for funds. Investors will always need money for deals, and sometimes traditional bank loans aren’t available to everyone. Others just prefer the flexibility of setting their own terms on a deal.

Although there are plenty of options available for private financing, many investors prefer Self-Directed IRAs (SDIRAs). According to a recent study from Investment Company Institute, $28 trillion are in retirement assets. Of that, $9.2 trillion 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.

Creating your own private financing source is possible when you establish a relationship with a private money lender that utilizes an SDIRA. The potential to have the funding within days is just one of the many exciting possibilities afforded by the money-borrowing aspect of Self-Directed IRAs. Best of all, SDIRA loans allow the SDIRA lender and the borrower to decide on the terms of the investment together.

For lenders and borrowers alike, private loans with SDIRAs have provided opportunities for successful deals and have given investors options outside traditional bank loans. As mentioned, sometimes a traditional loan from a bank or hard money lender just doesn’t work for unique funding situations. Especially in a market like real estate, in which investors seek creative strategies, having a private financing option is almost necessary.

With a Self-Directed IRA, investors can loan out their retirement funds on their terms, as decided and agreed upon with the borrower. These agreements are usually more customizable than regulated bank loans, and typically the interest rate works out in favor of both parties, making it a great investment for a lender and their SDIRA. Decisions about everything from the principal amount, interest rate, time period, collateral and frequency can be made together, between the lender and the borrower.

Flexibility is a huge benefit when using private funding from an SDIRA. The time frame to have a private loan funded is one of the many advantages that draws investors to this outlet of private financing. Whereas applying for a traditional loan can be a lengthy process, getting funds from an SDIRA lender can take less than a week, depending on the IRA custodian. Due to the simplicity and ease of private loans, they have become one of the most common SDIRA investments. This means private funding is not expected to ever be in short supply.

Private lenders typically have a certain set of criteria when vetting someone for a loan. Lenders may consider the borrower’s credit scores, the investment loan to value ratios, the amount of time the investment may last and, in the event the money is not paid back, whether the investment is something the lender 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.

Borrowing from a bank can be time-consuming and stressful, but private lending doesn’t have to be. Private loans with an SDIRA are great investments proven to benefit all parties, from those seeking private funds for their deals to the SDIRA lenders themselves. If you have questions about how SDIRAs can be a source of private financing, call an IRA specialist at an SDIRA custodian you trust!