Ask most real estate investors what’s inside their self-directed IRA and you’ll usually hear about property. A rental house. A duplex. Maybe a small commercial building. And that makes sense, because property is the asset they know best.
But here’s a pattern we see over and over: somewhere along the way, an experienced real estate investor discovers the other side of the deal table. Instead of being the one borrowing money to buy the property, they become the one lending it. And for many of them, it’s less a career change than a lightbulb moment: I already understand everything about this transaction. I’ve just been sitting in the other chair.
If you know real estate, you already know more about private lending than you think. Let’s look at the asset classes hiding in plain sight.
Private Lending: Being the Bank
Private lending is exactly what it sounds like. Instead of your IRA buying the property, your IRA funds the loan that helps someone else buy or renovate it. The account holds a promissory note, typically secured by the real estate itself, and collects the interest payments.
Think about what you already bring to this. Years of buying property means you can evaluate a deal, an after-repair value, and a borrower’s plan with an experienced eye. You know what a realistic renovation budget looks like. You know which numbers on a pro forma tend to be optimistic. That’s precisely the skill set lending requires; you’re just applying it from the other side of the closing table.
What draws investors to lending inside an IRA is the shift in what they’re managing. No tenants, no toilets, no 2 a.m. phone calls. The asset is the paper, and the paper pays on a schedule. The interest flows back into the account, where it grows tax-deferred or, in a Roth, potentially tax-free.
Lending has its own risks, of course. Borrowers can default, projects can stall, and collateral can be worth less than expected, which is why experienced lenders underwrite carefully and secure their notes properly. It isn’t passive magic. It’s a different application of judgment you already have.
Notes: Buying the Payment Stream
Closely related, and often the next discovery: you don’t have to originate a loan to own one. Existing mortgage notes can be bought and sold, which means your IRA can purchase a note someone else created and step into the lender’s shoes, collecting the remaining payments.
Notes come in different flavors. Performing notes, where the borrower is paying on schedule, tend to behave like steady income streams. Non-performing notes trade at deeper discounts and attract investors who specialize in workouts and resolutions, a more advanced game with more moving parts.
For a real estate investor, the appeal is familiar territory viewed from a new angle: the collateral is still property, the analysis still involves value and equity, but the asset in your account is the debt rather than the deed.
The Overlooked Middle Ground
Between owning property outright and holding paper, there’s a wide middle territory that surprises a lot of investors when they first hear what an IRA can hold:
Partial interests and partnerships. Your IRA doesn’t have to fund an entire deal alone. It can hold a percentage interest alongside other investors, or alongside other IRAs, which opens the door to larger projects than one account could take on by itself.
Private funds and syndications. Accounts can hold interests in private offerings such as real estate syndications or private funds, letting the account participate in bigger deals with professional management. These come with their own diligence questions, and some structures can raise tax considerations like UBIT, so this is territory where your own advisors earn their fee.
Options and other creative structures. Some investors use their accounts to hold real estate options, agreements that secure the right to purchase a property, which can be a lower-capital way to participate in deals they know well.
The common thread through all of it: these aren’t exotic instruments requiring a new education. They’re variations on transactions real estate investors already understand, held inside an account built for long-term growth.
The Same Rules Still Apply
Everything we covered in our recent piece on IRA real estate applies here too. The IRA is the lender or the note holder, not you personally. The money flows through the account, the income returns to the account, and disqualified persons stay out of the transaction. Your IRA can’t lend to you, your spouse, or your kids, no matter how solid their deal looks. The guardrails don’t change just because the asset does.
Start With What You Know, Then Look One Step Further
The investors who get the most out of self-direction usually follow the same path: they start with the asset they know cold, get comfortable with how the account works, and then discover that their expertise transfers further than they expected. If you know property, you can learn paper. If you know deals, you can learn deal structures.
Curious what that next step could look like for your account? Reach out and tell us what you’re already good at, and we’ll walk you through how investors like you typically put that knowledge to work.
MidAtlantic IRA, LLC does not review the merits or legitimacy of any investment and does not endorse or recommend any companies, products, services, or investments. MidAtlantic IRA does not provide financial, legal, or investment advice. All information provided is for educational purposes only. Please consult with your professional advisors prior to making any investment decisions.