Using Your Self-Directed IRA for Hard Money Lending

Your Self-Directed IRA isn’t limited to the usual menu of stocks, bonds, mutual funds and CDs most ordinary financial advisors and investment companies make available to you. With very few exceptions, your Self-Directed IRA is a ‘go-anywhere’ vehicle that allows for a great deal of flexibility and a lot of investment options that many people don’t know about.

One of them is the option of hard money lending.

What is hard money lending?

Hard money lending is short-term lending to investors, generally on real estate. These loans are frequently bridge loans of a few days to a few years in duration.

Generally, hard-money loans are secured by an interest either in the property being developed with the loan proceeds or via cross-collateral from other properties or assets. In either case, hard money lending is usually asset-based, rather than income-based. Hard money lenders lend on the security of the underlying collateral, more than on the promise of future income.

Hard money’s role in the market

For these reasons, hard money lending is a viable and popular source of financing among non-traditional borrowers. Borrowers who have trouble qualifying for lower-cost, traditional bank financing, or who want more flexible terms, often gravitate toward hard money lenders. Underwriting is faster, and there is less paperwork. If the assets available provide sufficient collateral, a loan can be processed quickly and funded within days, not weeks. This is a big advantage for developers and real estate investors working on tight timelines, or who are constantly competing against other buyers to snap up the most promising properties.

Advantages to the Self-Directed IRA hard money lender

As a Self-Directed IRA owner engaging in hard-money lending, there is substantial potential benefit to you. Hard-money lending allows you to potentially realize above-market returns on lending, receive income according to your own terms worked out with the borrower, and enjoy substantial downside security from your claim on collateral.

Above-market interest rates. Interest rates on 10-year treasuries are around 2 percent as of this writing. High-yield corporate bonds are, in the aggregate, yielding around six percent, as are traditional mortgages. Traditional income generators like REITs are under the four percent mark, as represented by the FTSE All Equity REITs Index.

But hard money borrowers are often willing to pay rates well in excess of those charged by traditional financing for the sake of speed of execution or more workable terms. Often rates approach 8 to 10 percent in these deals – which thanks to collateral, may well be much safer than other types of investments for the patient investor.

Collateral. The lender is free to set collateral terms, so long as the borrower agrees. You can own a first lien position on the property or make any other arrangement you like. The point is that you have downside protection.

Tax Deferral. Self-Directed IRAs are ideal homes for hard-money lending. Normally gains realized via hard-money lending are taxable immediately. But holding them in a Self-Directed IRA allows you to defer paying taxes. That means you can continue to lend out money and earn returns on money that you would otherwise have had to pay in income tax to the IRS. This is a powerful argument for using the Self-Directed IRA or other retirement account as a vehicle for this type of lending.

American IRA, LLC, is a national leader in Self-Directed IRAs. Many of our most successful clients routinely engage in hard-money lending. For more information about how this type of lending may fit into your portfolio, contact us at, or call us at 866-7500-IRA(472).