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Investing your IRA in a Promissory Note

Promissory Notes Aid In Retirement Diversification

Investing Your Roth In Calmer Waters

I hope everyone had a fun and safe Halloween.  I can’t believe it’s already November.  Thanksgiving is just around the corner and Christmas will be here before you know it.  This year has flown by and we would like to thank all of our wonderful clients for making this the most successful year in Sunwest Trust’s history.  We could not have done this without all of you.

I was having a bit of writer’s block today when I was trying to think of a blog topic, so I started reading back through the blog entries from the past few weeks.  I started to notice that I have had the best response and the most emails about the entries giving personal experiences of what to invest in through your Self-Directed IRA.  I often think that the only problem with Self-Directed IRAs is that many people just don’t know what investments to make.  Lots of people are sick of the volatility of the stock market but don’t know what other investments are out there.  I’ve decided to start devoting one day a week to writing about something that you can invest in through your Self-Directed IRA.

Sharing What Have I Done With My Own Retirement Plan?

Today I would like to talk about an investment that I recently made through my own IRA.  A college friend of mine is a real estate investor here in Albuquerque.  He’s done extremely well buying foreclosed homes or other properties that he finds cheap, then rehabbing the homes and selling the homes at a profit once they are fixed up.  The only problem is that he doesn’t always have enough money to fix up the homes after he purchases them.  He is willing to pay his investors a high return on their money because he knows that his return on the sale of the property will be high enough to pay the interest and still make a profit.  Also, he doesn’t mind paying the higher interest rates because he knows he would have a hard time getting the money from a financial institution.  It’s difficult to get conventional loans for these types of investments because many banks see them as risky loans.

Home Repair Money Loans

By loaning the money for the home repair to my friend on a promissory note through my IRA, I am able to help out my friend while earning a nice profit for my IRA at the same time.  A promissory note is a simple document that you can easily prepare without the help of an attorney.  The promissory note will contain the loan amount, the interest rate and the term of the contract.  It’s usually a one-page document that is signed by the borrower.

promissory note is a negotiable instrument, wherein one party (the maker or issuer) makes an unconditional promise in writing to pay a determinate sum of money to the other (the payee), either at a fixed or determinable future time or on demand of the payee, under specific terms. Wikipedia

How Does Sunwest Factor In?

Once the promissory note is prepared, I give Sunwest Trust a direction of investment telling them to send a check to my friend’s company.  The promissory note is titled to “Sunwest Trust Custodian FBO Dustin White IRA” and is held in my file as proof of investment.  Once my friend has done the rehab on the home and sold the house, he returns both the principle and interest to Sunwest Trust where it is deposited back into my account.

A Tax Professional Can Keep You Out Of Hot Water

It’s important to note that you cannot do any investments with disqualified parties.  Make sure that you consult a tax professional before making any investments through your Self-Directed IRA.

Terry White

About Terry White

I started my business career after getting my degree in Accounting from the University of New Mexico in 1983. My first job was as a controller for a local title company, and in 1987 I started First Financial Escrow, Inc. Over the years I played a part in several startup companies including First Financial Equities, Inc., First Financial Trust, Inc., First Financial Marketing, Inc. and Asset Ventures, Inc. In 1997 First Financial Escrow, Inc. was able to purchase the escrow accounts from Sunwest Bank and changed its name to Sunwest Escrow. As the market changes, Sunwest has grown and changed along with it. Besides my wife, Sheila, we have three boys, two daughters-in-law, one grandson, another grandson on the way and a future daughter-in-law. Sunwest is my passion, and I enjoy coming to work every day to see what will happen next. I enjoy fly fishing, spending time in Colorado, biking and watching my boys play soccer.