Hard Money Loans
In the world of Self Directed IRAs you could use your retirement account to be both a borrower and lender when it comes to hard money loans. There seems to be a lot of confusion about what is meant by private money loans also known as hard money loans. The basic idea of private money lending is that private individuals who have money to invest choose to loan that money, generally on real estate secured transactions, with the desire to receive a fair return on their investment. The defining characteristic of private money is the process and criteria by which the money is allocated to loans. Private money is quite different than institutional money in the following ways:
With private money lenders, there is greater flexibility with regard to the types of loans and circumstances which money will be lent.
The amount of collateral is more important to hard money lenders than the qualifications of the borrower, although both are considered.
It is generally possible to transact a hard money loan very quickly. Income verification is rarely required, and appraisals are often not required.
Hard money loans tend to be more expensive than institutional loans.
The loans tend to be of shorter duration.
There is a common error in thought about hard money borrowers and that is that they are desperate borrowers, in trouble and without other options. Private money borrowers are more often than not, solid individuals or businesses that have opportunities that do not fit well with the rigid structures of institutional lending; they require speed and flexibility not available through conventional banks.
When it comes to your self directed IRA, being a private money lender can be very profitable for your retirement account as most hard money loans earn 12 to 18 percent depending on the risk associated with the loan. Before becoming a hard money lender be sure to understand how to securing your money with a property and be sure you understand all the risks that come with this type of loan.
If you want to be a borrower for a quick transactions with less red tape from the lender then hard money loans might be a way to borrow money to fix and flip properties. Again understand your obligations as the borrower and educate yourself on rules that concern IRAs that borrow money.