What would you do with $10K in a SD-IRA

Question

To follow up on "What would you do with $50K in a SD-IRA" (http://www.biggerpockets.com/forums/51/topics/60324-what-would-you-do-with-5-k-in-a-sd-ira-)... 
What would you do with $10K in a Self-Directed Roth IRA??  :roll: 
I'd be happy with 10% return.

Loc R. · Answer

So a partial note purchase might look like this:

There's an existing note for:

240 months
8% interest
$60,000 face/principal balance
$501.86 payment

As an investor, you want to make 10% on your money, and you have $10,000 to invest.

So...we are solving for N (number of payments)
Y = 10%
PMT = $501.86 payment
PV = $10,000
N = 21.9

So you can either do one of 2 things:
(1) buy 22 payments, that would cost you $10,049.93
(2) get the 22 payments for $10,000 (your yield would inch up to 10.54%)

There are at least 5 ways I've seen partials structured, in terms of contracts.

The way I buy my partials is that I own the entire note, and after I get what I paid for, the note reverts back to the seller.

In the event that the payor defaults, I would take it to foreclosure.  If someone buys at the auction, I would get satisfied first and then the seller of the note would get the rest.  If not, I take it back and sell it.  I get my portion first, and then the seller gets the rest.

Bill Gulley · Answer

Well, I'd suggest you use 5K to play with and leave 5K alone, starting off. 5K is enough to buy a coupleyears worth of payments on say a smaller note of 25K or so. You should be able to discount the payments to provide a 20% return, same money half the risk. You could buy the payments on a small second mortgage so long as the note holder does so with recourse. You could end having the right to acquire the first dollar if it pays, if not you could get the note, but if you're behind much in the combined loan to value you'll have to take out the first to protect your small investment.

Better to buy a partial in a first for the period that gives you your return. If someone needs more than 5K, you can participate with another note buyer too. Participations can be tricky and have more risk since you'll need to share any money received from any problem.

Buying a participation in a partial or a partial will probably give you the safest return, if you take care in what you're doing. I would not advise you to make a second mortgage, especially behind something you could not pay off.

If you get deeper in this, you can always pick my brain with a PM. Good luck...

Marc Faulkner · Answer

You could buy a manufactured home, fix it up and create your own note by offering it for sale with seller financing.  Your return will be much greater than 10%!

You could make a loan to an investor and charge them 10% on the note.  They could offer up a car title or boat title for security.

You could partner with investors that holds notes and buy a partial as mentioned above.  Our investors like buying partials because they know that we have an interest in making sure the note gets paid so that we get our tail end.

It is actually real simple.  You just buy the rights to collect future payments on a Promissory note from a note holder.  Once you make your purchase the payments will be directed to your IRA for the payment period at your desired return.  In my opinion this is the best way to go if you are starting out with such a small amount.  10% is a perfectly reasonable expectation of a return.  I would be happy to answer any questions you might have regarding the subject.

Bryan Hancock · Answer

You can lend in 2nd position for fixing a subject-to/wrap sale with a short balloon date.  The warning I would given is that the buyers normally don't perform though so your money isn't very liquid.  As the payback date floats later and later the likelihood of getting paid back decreases.

Jon Klaus · Answer

http://baltimore.craigslist.org/search/rea?query=mobile+home&srchType=A&minAsk=&maxAsk=20000&bedrooms=

Jon Klaus · Answer

You can buy an entire note on a Lonnie deal--a mobile home note.

Joshua Dorkin · Answer

Hey Loc - Can you talk a little more about partials?

How would one buy a piece of a note?  What happens with one of these when the property owner stops paying for some reason?

Loc R. · Answer

You can buy a partial of a note.

What would you do with $10K in a SD-IRA

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