Many would-be home buyers have discovered that credit is increasingly hard to come by. Rising numbers of mortgage defaults and mounting foreclosures are key factors that have forced many lenders to increase their rates, cancel promised loans, and even go out of business.
This is not bad news for all, however. A growing number of investors are taking advantage of the situation to expand their own investment portfolio -- while simultaneously benefiting borrowers -- through private lending. By providing cash leverage at better credit rates or through less-stringent loan qualification requirements, private individuals are filling the gap created by skittish mortgage companies.
Once the domain of the wealthy elite, private lending has been discovered by those with a moderate amount of funds in their IRAs and 401(k)s. Thanks to the Employee Retirement Income Security Act of 1974 (ERISA), retirement account holders can “self-direct” their funds into a wide variety of investments, including personal loans. These self-directed accounts enable investors to diversify their portfolio into potentially more secure and lucrative areas outside the volatile stock market.
Brian Curcio of Chandler, Ariz., discovered the benefits of self-directed IRAs by establishing a retirement account through Guidant Financial Group. “I am currently investing my self-directed IRA in private lending,” he says. “I have been able to complete three deals in just four months with a return of about 12 percent.”
Guidant has been seeing a tremendous increase in private lending. People are finding self-directed retirement accounts with checkbook control particularly beneficial, since such structures allow on-the-spot lending of IRA funds to borrowers. With the flexibility they provide, investors can take immediate advantage of market trends, such as an ailing credit market.
Some private lenders work directly with borrowers, while others work through mortgage brokers or real estate companies eager to move properties. Many private lenders looking for investment opportunities check out websites like prosper.com, an online community of lenders and borrowers that works similarly to eBay.
Private lending offers the promise of excellent investment returns today and the potential for even more profitable opportunities in the future. Says Curcio, “I plan on continuing with this type of investing for the next few years and then, hopefully, I will have enough money in my real estate IRA to buy my own property without leverage.”
More Information: Self Directed IRA LLC & Small Business Financing
