I appreciate your indulgence as I get going on this blog. I have had a couple false starts, but I am getting back in the saddle again. I have a number of posts ready to go and more lined up behind those. Back in March, I was talking about 401K(s) and IRAs, and some of the alternative investments you could do in them. Back then, the stock market was hitting new lows and it was looking pretty dreary.
In the meantime, though, the stock market has bounced back from those lows and has been very impressive. From a technical standpoint, we are out of the bear market because we have come back over 20% from the lows. In fact, from its intra day low of 6440 back in March, it has soared almost 45% to close yesterday at 9320. Anyone who caught that rise has seen a nice run up in their portfolio. Not enough, probably, to recoup all the losses from the previous eight or nine months, but a nice change of pace, though.
At the same time, my investors continue to chug right along at a nice solid, consistent double digit return on their investments. Not as much as the stock market during the past four months, but then, they don’t have to worry about whether it’s going back down sometime soon or not. And the reason for that is the ACTUAL topic of today’s post.
You see, the last time I wrote, I talked about investing directly in Real Estate, specifically owning and managing rental property, within your IRA as a means of making some surprising returns on your investments. But being a landlord is not for everyone. Most people at this point are saying, “I’ve never done anything like that. I don’t know how to buy an investment property and fix it up, let alone find and manage a renter. Especially, if I’m not going to get any immediate benefit from it. I mean, I have to wait until I retire to take advantage of the money in my IRA.” In addition, you probably have a full time job or a business that isn’t directly related to real estate. Who wants to take the time to learn all that you need to know?
Good points, all. Which leads me to another type of investment you may hold in an IRA. Secured Loans. In this case, that means a Promissory Note and a Mortgage. I call them Private Mortgages. Do you know someone like me who invests in Real Estate? Who buys houses or apartments, fixes them up, and either sells them or rents them out? Instead of getting directly involved in the Real Estate Investing world by doing it yourself, why not become indirectly involved by lending money to those folks at very attractive rates of return, with all the profits from them going back into your IRA tax free?
Here’s what I mean. I’ve been an investor for a number of years. My preferred way to finance my properties is to use other people’s money. When I have a house to buy and renovate, I usually borrow the money from a private individual to purchase, fix up, and then market the property for sale. In return, the private individual gets a higher than normal rate of return for the money, plus a recorded mortgage on the house I buy. He acts just like the bank, with all the rights that come with it, including the right to foreclose and take the house back, if for some reason I default on the loan. (I’ve never done that, by the way, and I run my business so that I never will have to, the Good Lord willing!) When I sell the house, I can pay off the mortgage and pay back the private individual.
And as I said above, this can all be done with IRA money, as an investment of the IRA. The money is invested with the Real Estate investor directly from the IRA. Along the way, monthly payments on the mortgage are made directly to the IRA and the interest portion of those payments is the profit for the IRA. When the Real Estate investor sells the house, the money from the payoff of the mortgage goes back into the IRA, and it’s then ready to start the process all over again.
What are the benefits of this type of investment? They can be significant.
• Higher rate of return – what has your return been lately?
• Consistent rate of return – the rate is fixed, instead of heading up or down on the day’s news, over which you have absolutely no control.
• The investment is secured by significant equity in Real Estate – for many investors, the total loan to value of all loans against a property stays below 60%.
• Passive investment – Just set it and forget it!
• It’s growing tax free in your IRA – and if it’s a Roth IRA, you’re able to even take it out TAX FREE when you retire!
Investing in Private Mortgages. Even in today’s market, they can provide a safe, secured, high return investment alternative to the ups and downs of the stock market.