How to Invest in Notes in Your IRA

by Eric Petrus, Transaction Manager, uDirect IRA Services

Promissory Notes, both secured and unsecured, have become very popular with account holders as an investment option for their IRA.  Investing in Promissory Notes can be done via a new Note, or the purchase of an existing Note.  Our account holders invest in both secured and unsecured Notes.

            A secured Note can be either collateral against residential real estate via a Deed of Trust or Mortgage, depending on the state the residential collateral is located in.  If lending to a business entity, you might even choose to secure your loan against the company’s assets via a UCC-1 filing.  If the Note is to be unsecured, the IRA would require a Hold Harmless letter to be signed by the account holder acknowledging the higher risk of loss involved in an unsecured Note. 

            As an IRA account holder, you can choose to purchase an existing Note as opposed to making a new Note to a borrower.  Should you purchase an existing Note, you would also provide an Assignment from the seller of the Note to the IRA.  If purchasing the Note for less than face value, a Bill of Sale between the IRA and the Note seller outlining the price to be paid would also be needed.  Often-times, an amortization schedule may be needed as well when purchasing an existing Note for less than face value.  Furthermore, if the existing Note being purchased is being bought from someone other than the original lender stated on the Note then a full history of all assignments of record would be needed.  This, of course, is to show that the current seller of the Note is in fact the current holder of record.

            In addition to the docs indicated above, the account holder would provide us with a completed Direction of Investment (DOI) form instructing us to fund said investment. 

Standard titling format and address for the lender/beneficiary would be:

<account holder First Name Last Name>, legal owner via non-trust custodial IRA with AET.  Lender/Beneficiary address to use in the note would be: 6900 Westcliff Dr., Ste. 603 – Las Vegas, NV 89145 (not your personal name and address).  Learn more on our website HERE

***Note: Checks from your borrower must be made payable to American Estate & Trust, LC <account holder First Name Last Name> IRA (This is so we may deposit the check and further credit to your account). 

 Additional notes regarding our minimum required Note terms:

-Your Note should contain a defined 1st payment and maturity dates (i.e. month/day/year)

-Note payments should occur at minimum once per year (1 payment minimum every 12 months)

-Payment $ amount to be made should be indicated on Note

-Deed of Trust/Mortgage: account holder cannot be listed as trustee.  Trustee must be a non-prohibited party to the IRA

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