Mortgages & Notes
Private Lending as a First Alternative
Banking regulations have dried up traditional financing
During the market downturn and continuing through the current slow economic recovery, business and real estate entrepreneurs have significantly increased their borrowing from private sources. The new banking regulations coupled with conservative underwriting guidelines has dried up traditional sources of financing capital, so private lending is booming.
At NuView IRA, private lending, including secured notes like mortgages with real estate collateral, has become one of our fastest growing segments of self-directed IRA funds. The ability of the lender and borrower to set their own terms and collateral together with the speed of NuView’s funding can result in significant advantages for both parties.
NuView clients tell us that lending IRA money often creates a better return after tax than using personal funds. For most individuals, the interest income derived from lending is taxed at ordinary income tax rates, reducing returns by as much as 39.6% or more, depending on tax bracket and state residency. Inside an IRA, taxes on interest payments are deferred until later distribution. Of course with a Roth IRA accounts may never pay taxes on the gains, so long as the client meets the age and holding requirements at distribution. Also, the freedom to set terms and collateral can reduce risk and increase returns, based on the agreement between the parties.
Backed by collateral, providing the lender increased assurance of return on the loan amount and interest. The most common form of collateral for a secured note is real estate. However, notes can also be secured by non-real estate assets.
Not backed by collateral, but you might consider an unsecured note for a friend or a non-disqualified relative. Remember, unsecured notes almost always present a higher risk, though sometimes for a higher reward, than secured notes.
Once the loan is issued, the IRA lender or a party named on behalf of the IRA will be responsible for loan servicing. All NuView clients can view account information through the MyNuView online client portal allowing the loan servicer to track payments, provide allocation between interest and principal, and work with the borrower to resolve late/non-payment issues. Later if the lender wishes to amend the note, NuView just needs the directions along with the amended loan documents to make the change. The same process is followed for loan payoffs. As loan payments are returned to the IRA, the lender is free to make additional loans or purchase other assets with those IRA funds.