The Basics of Mortgage Notes

To diversify their portfolio, investors sometimes need to think outside the box. This means considering alternative investments such as mortgage notes. Investing in mortgage notes allows investors to get involved in the real estate investing world without flipping houses or vetting tenants for rentals.

When an investor uses their self-directed IRA to invest in a mortgage-backed note, the IRA acts like a bank by loaning money to the borrower. The IRA then receives a note and deed of trust. According to the terms of the mortgage, the borrower pays back the principal and/or interest to the IRA each month until the loan is satisfied. Once payments have been completed, the borrower owns the property outright.

The deed of trust provides protection for the investor in the event of default, putting a lien against the property so the mortgage holder can foreclose and take control of the property if necessary. If this happens, the IRA will own the property instead of the mortgage. The investor is then free to do with the property as they see fit.

To invest in a mortgage note, the investor needs to work with a title company or real estate broker. They will help to gather all of the necessary forms for the investor to sign and send to Mountain West IRA. As the custodian, Mountain West IRA will then review the paperwork before approving the investment to make sure everything is in order.

Mortgage notes do not require as much personal involvement as directly owning a piece of real estate, making them a favorable investment to many investors. For those interested in investing in mortgage notes with their self-directed IRA, visit the Mountain West IRA website to learn more.

Benefits of Rental Properties

Real estate is a tangible investment, which is one of the main reasons it has become a popular choice for IRA accounts. Unlike stocks and bonds, investors can actually visit their properties. Rental properties are a great way to diversify a portfolio and provide the ability to earn measurable income for the investor.

Here are some benefits to investing in a rental property with a self-directed IRA:

  • Income from Renters

The main benefit of rental properties is the direct income from renters. However, this is only true if the property is occupied. With a house, this can be more difficult, because there is only one renter and the property may remain vacant during transitions between renters. Apartment complexes, duplexes and other multifamily properties have more than one renter and therefore generally provide a more balanced income stream.

  • Income from Property Value Growth

Over time, property value traditionally increases, even with no changes made to the property itself. This depends heavily on the location of the rental property as some areas increase or decrease in value more quickly than others.

  • Sweat Equity

When a property is well maintained and upgraded when necessary, it will add additional value. This allows the owner to charge more for rent and sell if for a larger profit later, if they choose. Home improvement projects such as landscaping, repainting, and upgraded appliances can significantly increase the property value and attract potential renters.

  • Property Management

For investors who do not want to personally manage the property, a property manager can be hired to take care of finding and evaluating renters and ongoing maintenance. Many investors find having a property manager relieves the stress and day-to-day activities from the owner.

For investors interested in investing in rental properties with an IRA, contact Mountain West IRA for more information. Real estate is just one of the many investment opportunities available to Mountain West IRA account holders.

The Basics of Limited Partnerships

In a partnership, which is a type of unincorporated business organization, multiple individuals, called general partners, manage the business and are equally liable to the debts of the business. Investors can invest their Self-Directed IRA in these businesses. These investors are then called a limited partners. They simply invest in the business but are not involved in management.
Limited partnerships are an investment option for Individual Retirement Account holders with Mountain West IRA. The partnership does not pay income taxes, but the individual partners have to report their share of business profits or losses. This means the investment is subject to Unrelated Business Income Tax. However, this is only if the IRA earns more than $1,000 in unrelated business income.
Although the investment might require the IRA to pay taxes, it requires little involvement by the owner since they are not involved in management. This is one of the benefits of this type of private placement investment. One important advantage when investing as a limited partner is the liability limitation. If the business goes bankrupt or is sued, the investor is only responsible for their own investment and not the debts of the business. General partners have a much greater liability.
Some rules regarding partnership investment with a self-directed IRA include:
• The partnership agreement must permit an individual retirement account or a qualified plan to be a partner
• The partnership must comply with the appropriate state law, have a determinate life, and be assignable
• The partnership subscription agreement must be signed by the investor as having been read and approved, and will be executed by Mountain West IRA on their behalf
Research and learn about Unrelated Business Income Tax and the company itself before making any investing decisions related to limited partnerships. Visit the Mountain West IRA website to learn more about private placements such as limited partnerships.

Investing in Raw Land

When investors with self-directed IRAs consider investing in real estate, they usually think of rental properties or homes they can flip instead of raw land. For many people it can be difficult to imagine the potential of vacant land and the healthy returns which may be available from this type of investment.

While raw land can require a longer investment timeframe than some other real estate investments, it offers great opportunities for those who understand and are willing to take on the commitment. There are a variety of prospective uses for raw land, including:

  • Residential and Commercial Development Property

If growth is expected in the area of the raw land, it could be parceled off and sold or leased to building contractors and investors. Or, investors could choose to develop the land themselves.

  • Oil and Mineral Producing Land

Investors may choose to lease mineral rights to mining companies or other investors.

  • Timberland

Soft and hard woods can be planted, harvested, and sold for profit. Tracts of the land could also be leased to others such as timber companies.

Some other uses for raw land include:

  • Raising crops
  • Raising cattle or other animals
  • Orchards
  • Vineyards

When considering investing in raw land, investors should understand not only the process, but the rules set forth by the IRS regarding this type of investment.

  1. All income and expenses relevant to the investment must flow directly into and out of IRA funds
  2. Avoid prohibited transactions and dealings with disqualified persons.
  3. Land purchased with the intent of running a business within an IRA is subject to Unrelated Business Income Tax.
  4. If the IRA took out a loan to purchase the asset, Unrelated Debt Financed Income Tax may apply.

For those interested in diversifying their portfolio by investing a self-directed IRA in raw land, contact Mountain West IRA. They can answers question investors might have before starting the process.

Gold Investments

Gold is not only a great way to diversify an investment portfolio, but has also been a reliable investment commodity for throughout history. Take a look at why many investors choose to include gold in their investment portfolio:

History

Over the decades, gold has generally been trusted as a wealth-preserving commodity holding its value during financial upsets. This is because gold can not be created like other currency with an assigned value. While currency fluctuates and weakens, gold tends to stay strong and not waiver much in value.

Diversification and Protection

Most investors stick to traditional investments such as stocks and bonds. However, a lack of diversification could put them in danger if things start to go downhill. Having a nontraditional investment like gold can help protect their portfolio from volatile times. While the value of the dollar has dropped, the value of gold has actually risen.

Types of Gold Investments

Gold Bullion– The value of a gold bullion is determined by the market price of gold at the time of purchase and it comes in two forms.

  • Bars: Gold bars are not generally kept in physical possession of the investor. The larger sized bars are usually only purchased by larger companies and organizations instead of individuals. However, there are smaller bars that are kept by individuals.
  • Coins: Gold coins are minted in several different one ounce forms ranging from 1/10 oz. to 1 kilo. The smaller coins are most popular among individual investors.

Jewelry/Coins with Artistic Value– Numismatic coins and jewelry made of gold are also purchased for their cultural, historical, or aesthetic appeal. Generally this leads to their value increasing faster in a bull market. In a bear market, they will decrease faster.

Gold Mining Stocks- With this, investors are buying a share in a gold mining company. Share prices are subject to a variety of factoring including performance of company management, auditors and geologists, cost basis, and the environmental and economic risk of the company.

Gold ETFs– Gold Exchange Trade Funds are products that track the price of gold and are traded on major stock market exchanges. They are not all backed by physical gold.

To learn more about investing in gold using a self-directed IRA, contact Mountain West IRA or visit their website. It breaks down what types of gold investments are allowed in a self-directed IRA and how they are handled.