Profit From an IRA Mortgage Investment

Bothered by all the fallout in the subprime mortgage industry? This article shows you how to find a reliable borrower and profit from it instead.

If you have a traditional IRA and decide that you want to diversify yourself into private mortgage investing, the first step is to find an IRA custodian that facilitates this kind of investment and initiate a tax-free transfer to that custodian. Most major financial institutions can do this, but other companies such as Pensco (see Resources below) may have fewer net worth and income requirements.

Once the funds have been moved, you will need to authorize the IRA custodian to invest in a specific mortgage note. Either you can find the note yourself or a mortgage note broker can find you one for a fee. A quick Internet search for private notes should locate a broker in your area. Novice investors should probably pursue this avenue, at least until they become familiar with the process.

Although there are exceptions, in most cases you will need at least $50,000 to begin this type of program. You can purchase either a new note or an existing loan, usually at a discount. There are many loan servicing companies and brokers that also offer payment collection services and go after delinquent borrowers. Sellerloans.com is one such company (see Resources below).

Historically, this type of direct investment has yielded returns in the 9 to 14 percent category, and the yields at this point are nearing the high end of the spectrum due to the lack of liquidity.

Tips & Warnings

• Many bank trust departments and brokerage firms can provide this service, but as mentioned previously, they may have net worth and income requirements that must be met before they will proceed.
• Investing directly in mortgage notes can be an involved process in some cases, therefore investors should do their homework and research the matter thoroughly before committing.

By ehow.com