Investing in Private Lending

Did you know you can lend money from your IRA account? Lending from an IRA has been an available investment option since IRAs were created in 1974. Still, many investors are either unaware or unable to find a provider to service the investment.

Midland provides investors the freedom to lend from their IRA accounts and receive principal and interest just like a bank. Lending from an IRA gives investors the freedom to set their terms and have more control over their retirement fund growth.

Types of Private Lending

  • Unsecured notes are not backed by collateral, but often carry higher interest rates on the loan amount. One might consider an unsecured note for a friend or a non-disqualified relative. Unsecured notes involve a greater risk—and sometimes reward—than a secured note.
  • Secured notes are backed by collateral, such as deeds of trust or the property itself. This backing provides the lender with increased assurance of return of the loan amount and interest. One of the attractions to secured notes for many investors is their collateral instruments. Collateral serves as protection if the loan defaults. The underlying collateral, interest rates, and amortization are all agreed upon between the IRA owner and the borrower. This structure gives the lender the ability to choose risk and tolerance levels. Self-directed retirement accounts can also participate in fractional ownership of notes and purchase existing, discounted, or distressed notes.

FAQs on Private Lending in a Self-Directed IRA

What is the minimum interest rate I can charge? What is the maximum interest rate I can charge?

Typically the interest rate would be the current prime rate plus one. Please check State Usury Laws for maximum interest rates.

Does the loan have to be secured?

Loans can be secured or unsecured.

If I can't loan to myself, can I loan to a friend if they are going to return the favor? For example: A's IRA lends to B; B's IRA lends to A.

You can lend money to a friend as an investment. The investment should not be structured in any way in which you personally benefit. For further clarification, you should speak with a financial or legal advisor.

Can I loan to my son/daughter?

Children are a disqualified party and cannot borrow money from your IRA.

What criteria do we require for the note itself?

The note should have a clearly stated interest rate and maturity date. It should include the principal amount and repayment terms. Finally, it should name the Lender (Midland Trust Company as Custodian FBO Your Name IRA #xxxxx) and the Borrower. We may require an original pen signed note.