401k Individual Retirement Plan: Be the Bank with Self-Directed Plan
“Investing” is a simple concept under which, you use your existing money to create more money and so on. However, the art of investing is difficult to come by and you will encounter an army of amateur investors that didn’t make it. But it is rare to find a bank that had a similar opinion about investing. No matter how bad the economy is, banks stay afloat with their profits temporarily down and they turnaround as soon as the economy is back in shape. Well, there are other reasons too including their deep pockets, never ending army of employees and a huge clientele. Nevertheless, it is possible to imitate their strategy and book returns with lower risks. A 401k individual retirement plan allows you to practice private lending through various means, and one of these means involve mortgage notes.
Invest in Mortgage Notes with 401k Individual Retirement Plan
When talking about investment options, mortgage notes are among one of the lowest risk options available in the market beside CDs (certificates of deposit). Some 401k Individual retirement plans such as Solo 401k allow investing in notes and similar non-traditional investment options. Mortgage notes eclipse other investment options because of their regular income generation capability and comparatively higher returns. The interest rates on mortgage notes may vary from 8% to 12% depending upon the level of distress of the property and credit score of the borrower.
Why Invest in Mortgage Notes with 401k Individual Retirement Plan?
- Collateral: Mortgage notes are secured by physical properties, and in the case of failure of payments, you have the freedom to foreclose the property, ensuring the safety of your principal investment.
- Control and management: Unlike physical real estate, you can manage mortgage notes from your computer, without even visiting the property once. When compared with rental properties, mortgage notes do not require regular maintenance or repair as in the case of a house. You can manage multiple mortgage notes without breaking a sweat, which is not the case with rental properties.
- Liquidity: Above everything else, mortgage notes offer liquidity and you can always sell them to a banking institution or another investor on a moment’s notice. Generally, if you have a service company to manage your notes, they should be able to find the right buyers for your investment.
The best part of investing in mortgage notes is that you do not have to work a single day for your monthly payments. If you are planning to add mortgage notes to your 401k Individual retirement plan, make sure that the repayments come back to the account only. Make sure that your investments are structured correctly to enjoy tax-deferred growth and your Solo 401k provider will be able to provide these services.