What Is A Private Lending IRA?

Are you looking for a better way to save for your retirement? Then you might consider starting a private lending IRA. A private lending IRA puts you in the driver’s seat of your retirement savings strategy by allowing you the ability to become the bank. Here’s how a private lending IRA works.

A private lending IRA is much like any other retirement account. You make regular deposits into the account so that you can use the money to make investments that will grow in value faster than a savings account. However, rather than investing in things like stocks and bonds that provide an OK rate of return and a high risk of loss, a private lending IRA allows you to lend your money to others for a cost. Just like traditional lenders, the money you lend will be subject to interest payments that you and your borrower agree on which are often much higher than any return on your investment that you will realize with traditional investments. Your loan is then secured by a promissory note that allows you to repossess the property in the event that the borrower defaults on the note. Here is an example.

Let’s say that someone you know wants to purchase a home. Unfortunately, the bank won’t loan them the money they need to make the purchase. You have the $100,000 that they need saved in a private lending IRA so you and the borrower sit down and start hashing out the details of the loan including the interest rate, which you both agree on at 9% as well as the repayment terms. You agree to allow the borrower to make interest only payments for the initial five years of the loan in order to keep the payments low while he or she works on their financial situation. The borrower gets the money they need to purchase the house they want. You receive $45,000 in interest payments in the first 5 years alone, which you can then lend to someone else and increase your earnings. It’s a win-win.

But, what happens if the borrower defaults on the loan? Aren’t you just out the money?

The short answer is no. Just like a traditional lender, if the borrower defaults on the loan, you have the right to repossess the property, which you can then sell at fair market value. Because the rules of a private lending IRA stipulate that the amount of money you loan cannot exceed 75% of the value of the property, you actually stand to gain a substantial sum of cash, making it a very safe option for those looking to retire relatively soon.

A private lending IRA is the perfect solution for those who have lost a great deal of money in a traditional IRA due to weak and volatile financial markets and are a looking for a faster and safer way to regain ground. They also offer those who are looking to grow their retirement accounts quickly in order to achieve a greater sense of security about their retirement income.