- Self-Directed Accounts
- Investment Types
- Why Equity Trust
- Institutional Solutions
Self-Directed IRA Concepts
While the options for investments in a self-directed retirement account are nearly endless, there is one asset class that some Equity Trust clients prefer because it can be passive and offers an added diversification to their overall investment strategy. Promissory notes, or private debt investing, can offer investors a low-maintenance way to grow their wealth.
Here we answer the question, “How do promissory notes work?” and provide examples of how investors use them to grow their retirement accounts.
A promissory note is simply a financial document containing a written promise to repay a specified sum borrowed, as well as the terms of repayment, any collateral, etc.
The term promissory note is a catch-all that could refer to a variety of different types of notes, including:
There are two basic types of notes:
An IRA can hold a promissory note. The webinar provides a look at a real estate note investment Equity Trust client Joe in Minnesota completed with his retirement account. Here’s a summary:
Joe’s Roth IRA purchased a performing note on a single family residence in the form of a double-wide trailer in Florida. The market value of the property was $42,000.
There was a little over $31,000 left on the note when his IRA purchased it. The terms of the note were as follows:
Joe’s Roth IRA purchased the note at a discount for $24,425.
[Read another case study: Guy’s Hands-Off Note Investment]
Due to the unique rules associated with investments inside of self-directed accounts, the note payments must be made a certain way. The borrower makes the checks payable to Joe’s Roth IRA, and the payments are sent to Equity Trust to be deposited into Joe’s account.
In accordance with the amortization schedule, if all payments are completed, Joe’s Roth IRA will receive a total of $64,554. Joe’s Roth IRA would potentially see a profit of over $40,000, which amounts to a 14.19-percent yield.
Due to the tax advantages of a Roth IRA, if all rules are followed, it’s possible the profits will return to Joe’s account tax-free.
For more information about promissory notes inside an IRA, including three more case studies illustrating different ways clients have invested in notes using their retirement accounts, access our 15-Minute Guide to Building Your Wealth with Self-Directed Note Investing.
Am I restricted to only purchasing residential property with my IRA?
What are prohibited transactions in an IRA?
Case studies are provided for illustrative purposes only. Past performance is not indicative of future results. Investing involves risk including possible loss of principal. Information included in the above case study was provided by the investor and included with permission. Equity Trust Company does not independently verify all information provided by third parties.
You are leaving trustetc.com to enter the ETC Brokerage Services (Member FINRA/SIPC) website (etcbrokerage.com), the registered broker-dealer affiliate of Equity Trust Company. ETC Brokerage Services provides access to brokerage and investment products which ARE NOT FDIC insured. ETC Brokerage does not provide investment advice or recommendations as to any investment. All investments are selected and made solely by self-directed account owners.Continue