Our office has thousands of clients that are using their Self-Directed IRAs to invest in non-traditional assets including real estate. The most successful among them have learned to use other people’s money to finance their real estate deals. This article will outline how they find enough private money to give them an unlimited money vault.
Is borrowing allowed in a Self-Directed IRA?
Yes, you are permitted to borrow within a Self-Directed IRA as long as the loans are non-recourse. Non-recourse simply means that, in the event of a foreclosure, the lender has a right to seize the property the loan was secured by and nothing else. They cannot come after you, your Self-Directed IRA, or any other assets that you and/or your Self-Directed IRA own.
Why would I want a private lender?
Most people stop making deals after they have run out of their own money and/or reached the maximum amount they can borrow from traditional banks. That means they generally get stopped after they buy 3 or 4 houses. Building relationships with private lenders allows you to obtain an unlimited amount of money so that you can make an unlimited amount of deals.
How do I find a private lender?
The truth is that you already know enough people to get you started in private lending. The idea is to start with the people you know and then build from there through referrals. Some of the people you can approach about private lending include but are certainly not limited to:
- Insurance Agent
- Church Members
- Co-workers (past and present)
- Other people you do business with
- The lady that owns the dog kennel you board your dog at
- The beautician that does your hair
- The owner of the family restaurant that you go to all the time
- The owner of the dry cleaner that you take your clothes to
How do I approach someone about being a private lender?
It’s simpler than you think. When someone asks you what you do for a living, you share a presentation that you have practiced. Here’s an example:
“I buy real estate, fix it up and re-sell it or hold it for long-term investment. I use private financing to acquire these properties. A lot of my private investors loan me funds from their Self-Directed IRA or 401(k) since they are not making very much on their investments in those accounts. They like investing with me because I always give them a loan secured by a 1st mortgage on a property. They get above bank rates through the interest I pay them. If you know of anyone who may be interested or if you may be interested yourself, I would be happy to sit down and have a discussion about it.”
It really is just that simple.
In our next article…we will talk about what you do when a potential private lender wants to discuss things further with you.