Written By: Augie Byllott
I Now Pronounce You Partners in Lending! Ok, that really wasn’t what the pastor said on the day we got married but who knew 29 years ago that one day my wife’s IRA and my IRA would be able to partner with one another.
Our Roth IRAs have been lenders to a number of real estate investors and rehabbers looking to buy, renovate and sell properties. There have been a number of occasions where we could fund the loan in one account or the other but there have been times when we were actually able to have our IRA’s partner be each owning an undivided interest in a first position note.
Unlike the concept of equal partnership in marriage, we don’t even have to be 50/50 partners with IRA lending. Each IRA would have a specific percentage as an “undivided interest.” This turned out to be a great way to help build a smaller IRA because all income from the loans is prorated based on the share each IRA has in their undivided interest.
Things like origination fees, points and interest are pro-rated. This means that if we did a loan of $100,000, where my wife’s IRA had a 60% undivided interest and my IRA had a 40% undivided interest and we charged 12% and 5 points and we were paid back in 12 months our earnings would look like this:
Audrey’s IRA Augie’s IRA
Loan: $100,000 $60,000 $40,000
Income Received
Points $5,000 $3,000 $2,000
Interest/mo $600 $400
12 mos interest $7,200 $4,800
Net return $10,200 $6,800
Net Yield 17% 17%
Everyone wins! The real estate investor makes their profit, a new owner has a home and two IRAs grow. It even gets better when the loan pays off earlier because your yield goes up and you can do it again!
Augie Byllott, founder of CreatingWealthUSA.com , has helped people buy and sell homes and investment properties creatively for over 15 years. He has also published two books for investors and is the founding member of Common Wealth Trust services, LLC.
