Daily Real Estate News  |  September 13, 2007  |   IRA Owners Investing in Mortgages
Owners of self-directed IRAs are investing them in mortgages, according to companies that promote the strategy.

These entrepreneurs make loans with terms lasting from a few months to a few years to investors doing fixer-uppers, small-scale developers, and relocating families who need a bridge loan. They find borrowers through an informal network of real estate professionals, mortgage brokers, and other investors.

Self-directed IRA owners pay an annual custodial fee and transaction fees, ranging from $50 to a few thousand dollars a year, depending on asset size and activity. They typically charge borrowers a rate of at least 10 percent. These deals are typically structured with the property as collateral. If the borrower defaults, the IRA can wind up owning the property at a deep discount.

Two thousand of the 40,000 self-directed IRAs handled by Entrust Group Inc., which administers self-directed IRAs, are making real-estate loans, and the average account is valued at $250,000, says CEO Hugh Bromma. The number of accounts with such activity has doubled each year since 2005.

Source: The Wall Street Journal, Kelly Greene (09/11/07)