Lend to a Flip or Mortgage Note from my SDIRA?

11 Replies

 I have a promissory note on my SDIRA that's maturing on the 25th. It's invested on a flipping company in Florida for 11 percent interest. My question is what do you think is a better investment, a flip company or a mortgage note? I met somebody here in BP who does mortgage notes and he has opportunities for me to partner with him. He does all the DD and servicing while I fund the note 100 %, with 15 % interest. Do you think it's wise to just renew the promissory note or invest that money into a new strategy like a mortgage note?

@Vina Real

Both investments seem to be mortgage notes, unless the first is simply an unsecured loan to the company that is doing the flipping.  If that is the case, then I would definitely move to notes that are secured by real property instead of just a promise from a business owner with no real security.

Ultimately, the two assets need to be compared based on risk, level of security of the instrument, time length, and return on investment.

@Vina Real

For the Mortgage Note, you are putting up all the money (ie purchase note, boarding fees, servicing, any other assoc fees won’t list them all) and only getting 15%?

Most JV partners do 50/50 split they do the due diligence and investor puts up the acquisition costs (ie purchase, boarding, servicing, etc)

If you are lending from your SDIRA I think they may require the IRA to have first lien position that secures your debt.

Updated about 1 year ago

My answer was based on split not return. Disregard the ROI remarks. However, 50/50 split of proceeds regardless of ROI is always what I see and do.

@Vina Real  

Will your name be on the assignment? or simply getting 15% on private money? If he's able to afford 15% on your money, then he's definitely buying non-performing notes so i will make that assumption. If i were you i would either

- Ask him to put up some collateral, maybe he has another property he can use as collateral. 

- or go with a 50/50 profit split as @Daria B. suggested, this is how we do all our JV deals as well and ensure that your name is on the assignment as well.

Also you mentioned he will do the servicing, i'm assuming he will be working with a servicing company and you will be funding the expenses? Just make sure he's a licensed servicer. Is he buying 1sts or 2nd position notes? 

Hope this helps a bit

Yes, it' s actually an unsecured loan to a company that flips houses. 

@Daria B.
Can I get the name of who you invest with that gets you more than a 15% yield?

My name is on the assignment and there will be a servicing company but he will do all the paperwork and DD. I already did one note with him so I'm good with JV. My primary question is if I should continue to invest with the unsecured loan or do the mortgage note since this 25k (+8k left in the SDIRA) is the only available money I have left to play with inside my SDIRA.

Originally posted by @Chris Seveney :

Daria B.
Can I get the name of who you invest with that gets you more than a 15% yield?

I read that wrong I thought she meant split not return. 

@Vina Real

It appears the second note gets you 4% more and you have the note and mortgage securing the investment. Seems better than the first at 11% and a promissory note that may or may not be secured. 

Most likely the 15% note has points that are going to the originator and your getting the interest over time. As all suggested get references and do your DD on both parties and possibly diversify and use both in the future. It doesn’t have to. E an either or situation. 

Thanks everyone! I think I'm going to invest on the second one since I already have an unsecured loan on another flipping company just to balance it out.

@Vina Real

I always recommend having the funds (both the payments and final payoff) flow back to the IRA and then send the funds back out for the new note. This will help stem a ponzi scheme.

Hello @Vina Real

Like @Brian Eastman I'd like to know if the promissory note to the flipping company is secured by real estate or if it is unsecured? Personally I'd prefer a note secured by a mortgage on a physical piece of real estate over an unsecured note (assuming the strength of the payor was equal in both situations).  If you decide to work with a partner I suggest the following:

1)  Get involved in the DD and review the supporting docs to truly know what you are buying.

2) Use an outside third party servicing agent to collect and service the payments from the payor and then disburse payments to your IRA and the partner.

3) Have the assignment of mortgage (AOM) and note endorsement/allonge go into your IRAs name (or the trust vehicle used for your IRA).

4) Have a written agreement with your partner.

Working with partners can be great.... until it's not.  Taking those steps keeps you in the driver's seat. Nobody minds your money like you!

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