As a private investor, you can act as a bank using your solo 401k funds to finance a trust deed investment.
Of course, the solo 401k you have must be the self directed 401k type so that you can invest in any types of non-traditional investment options including real estate properties, mortgage notes, private business, and other types that are not related with stocks and mutual funds.
Like a bank, you can use your retirement money for lending an amount to the debtor in exchange for a promissory note which is supported by a trust deed allowing the debtor's real estate asset as the guarantee for the loan.
Promissory notes must contain important details of the repayment schedule.
The promissory note will serve as the legal binding between you and the borrower.
The important details must include the promise to pay amount, the frequency of payment, the interest rate, and maturity of the loan.
The good thing about this type of investment is that you have the timeframe on how long the loan will run because of the details stipulated on the promissory note issued by the borrower.
You will get to know how much you would be able to earn and you can plan ahead on what you can do next or where to invest your solo 401k funds after the loan matures or when you are completely repaid.
Normally, 65% of the value of the real estate asset is the amount you may lend the borrower.
Like a bank, you have the capacity to earn from the interest rate charged on the loan.
However, just like in other businesses and investments, risks are always involved.
In trust deed investment, the risk that may arise is when the loan goes through foreclosure.
This happens when the borrower fails to make payments on the loan for several consecutive payment schedule.
Since the loan is backed up by the collateral, the risk may not be as disturbing as it is compared to the risks of investing in stocks.
The possibility of losing your initial investment from your self employed 401k is extremely low.
The title company that holds the trust deed has the authority to execute the foreclosure and put the real estate of the borrower in auction to recoup your invested amount.
Since your investment is only 65% of the property, recovering that amount would not take that long especially if the real estate asset is attractive.
Trust deed investing is a very promising source of passive income for your solo 401k.
Of course, the solo 401k you have must be the self directed 401k type so that you can invest in any types of non-traditional investment options including real estate properties, mortgage notes, private business, and other types that are not related with stocks and mutual funds.
Like a bank, you can use your retirement money for lending an amount to the debtor in exchange for a promissory note which is supported by a trust deed allowing the debtor's real estate asset as the guarantee for the loan.
Promissory notes must contain important details of the repayment schedule.
The promissory note will serve as the legal binding between you and the borrower.
The important details must include the promise to pay amount, the frequency of payment, the interest rate, and maturity of the loan.
The good thing about this type of investment is that you have the timeframe on how long the loan will run because of the details stipulated on the promissory note issued by the borrower.
You will get to know how much you would be able to earn and you can plan ahead on what you can do next or where to invest your solo 401k funds after the loan matures or when you are completely repaid.
Normally, 65% of the value of the real estate asset is the amount you may lend the borrower.
Like a bank, you have the capacity to earn from the interest rate charged on the loan.
However, just like in other businesses and investments, risks are always involved.
In trust deed investment, the risk that may arise is when the loan goes through foreclosure.
This happens when the borrower fails to make payments on the loan for several consecutive payment schedule.
Since the loan is backed up by the collateral, the risk may not be as disturbing as it is compared to the risks of investing in stocks.
The possibility of losing your initial investment from your self employed 401k is extremely low.
The title company that holds the trust deed has the authority to execute the foreclosure and put the real estate of the borrower in auction to recoup your invested amount.
Since your investment is only 65% of the property, recovering that amount would not take that long especially if the real estate asset is attractive.
Trust deed investing is a very promising source of passive income for your solo 401k.
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