Secured and unsecured notes are used to extend credit from one or more individuals or entities to another individual or individual’s entity.
There are two types of notes:
- Secured notes are backed by collateral, providing the lender increased assurance of return of the loan amount and interest, such as mortgages and deeds of trust.
- Unsecured notes are not backed by collateral. You might consider an unsecured note for perhaps a friend or a non-disqualified relative, but it is a higher risk – and sometimes reward – than a secured note
Real estate purchased in a self-directed IRA can have a mortgage placed against the property, thus lowering the amount of total cash needed for a purchase. Business investments may include partnerships, joint ventures, and private stock. This can be a platform to fund a start-up business or other for-profit venture that is managed by someone other than the account owner of the IRA.
When real estate or real property is purchase through your Self-Directed IRA, these properties become assets of your account. In addition:
- You may not personally own property that you intend to purchase with IRA funds and you must ensure that your intended purchase is not a prohibited transaction
- Neither you, your spouse, nor your family members (other than siblings) may have owned the property prior to its purchase by your IRA.
- Neither you nor your family members (other than siblings) may live in or lease the property while it’s in your IRA.
- Your business may not lease or be located in or on any part of the property while it’s in your IRA.
- You may receive any property as a distribution from your IRA as a retirement benefit. This may be considered a taxable event and Horizon Trust Company strongly suggests that you consult a tax advisor or legal counsel for this type of transaction.
PLEASE NOTE: As a client of any self-directed custodian, it is completely your responsibility to investigate each and every investment that you make. A custodian cannot, and does not, provide any protection from a poor or improper investment. Make sure you know what you are investing in, with whom you are investing, and what investments may constitute a violation of IRS code with regard to Individual Retirement Accounts.