Self Directed IRA: Getting Started in Hard Money Lending

Looking for a way for your Self Directed IRA or other retirement account to generate a solid return with substantial provisions for safety of capital?

A way to diversify your holdings into assets that are not closely correlated to the stock market and the broad bond market? Consider hard money lending with your Self Directed IRA.

Hard money lending is a form of private lending. Borrowers typically approach them for help financing real estate development or construction projects to see them through to completion, with repayment often due at the completion of construction and the subsequent sale of the development or refinancing with more conventional credit at a lower interest rate. Loans terms are usually for anywhere from a few weeks to about two years, and secured with an underlying interest either in the real estate being developed or some other collateral that is acceptable to both borrower and lender. Interest, repayment, extension and default terms and pre-payment terms are up to the lender and borrower to decide between themselves.

All you have to do to get started is open a Self Directed IRA account with American IRA, LLC, fund the account, find one or more borrowers, and tell us where to send the money you’re lending. That’s it!

Hard money lending allows lenders to command a higher interest rate than conventional mortgage financing. Because the loan terms are relatively short, the borrower is usually more interested in closing a loan quickly and efficiently and getting funded with a minimum of fuss, and negotiating a repayment schedule that matches their cash flows from the investment rather than getting a rock-bottom interest rate. Lenders who are willing to grant these terms can normally get a somewhat higher interest rate in return. This usually suits long-term investors and retirement accounts just fine.

Underwriting is normally asset-based, not income-based. It’s the collateral that guarantees eventual repayment, not the borrower’s future income and credit rating. There is therefore no need for long, drawn out application processes, income verification, credit checks and the like. The borrower’s future income is irrelevant to the lender. This allows a loan decision to be made quickly, based on an appraisal of the value of the collateral. If the collateral is sufficient to cover the loan, and if the title is clear, or at least sufficiently unencumbered by any senior loans out there on it, and if there is sufficient insurance in place to cover risks to the collateralized property, then it’s easy to make a financing decision and cut the check.

Developers love it because it meets their real world need to keep administration time to a minimum, they can pay their vendors and keep construction moving.

Lenders like it because it can generate above-market interest rates, the collateralization allows for substantial safety of capital, repayment terms can be structured around the lenders income needs, and, of course, because these loans are relatively simple to underwrite and don’t require income verification and credit checks if you don’t want to do them.

Collateral can take the form of real estate, life insurance cash values, construction and completion bonds, or anything you like. However, understand that your IRA cannot take direct ownership of life insurance, jewelry, gems, collectibles, or alcoholic beverages. You’ll have to have those assets converted into cash or other non-prohibited asset prior to transferring it back into your IRA.

Your Self Directed IRA also cannot lend directly to your descendants, parents, grandparents, your spouse, your spouse’s children, grandchildren, parents or grandparents, nor to any entities they control.


In recent years there has been an increase in demand for hard money lending, as the practice, long established in the United States where hedge fund managers have sought out hard money borrowers and earned solid returns for years, has become increasingly prevalent abroad, as well. Lending opportunities aren’t limited to they United States, though, of course, lenders should be familiar with foreclosure processes and lending laws in whatever jurisdiction they’re doing business.

The global increase in demand for this form of financing has driven interest rates up, and rates of 8 to 12 percent have not been uncommon. That’s much more attractive than the 4-6 percent normally attainable with conventional private mortgage lending – again with collateral in place to secure the loan.

Banks and other conventional lenders typically do not finance this market, so the field is wide open for private lenders, including Self Directed IRA owners.

Want to get started? Have a borrower in mind? Call us today at 866-7500-IRA(472), or visit us at We look forward to working with you.