Why buy non-performing loans if you aren’t going to maximize your returns?
An increasing number of sophisticated investors are turning to buy non-performing loans and distressed mortgage notes as their preferred strategy for capitalizing on the real estate market and boosting the performance of their portfolios. Sadly, most individuals are missing out on the best returns because they aren’t fine tuning. A few simple tweaks could see profits in the double-digits.
The trend toward buying non-performing loans is a natural one for three good reasons: (1) new income tax laws, (2) ailing REITs on news of rising interest rates and increased competition for single-family REOs, and (3) foreclosures . But why let sizable sums pass through your fingers and hand over more to the tax man than is necessary?
One of the smartest moves investors can make to this end is to buy non-performing loans through a self-directed IRA or 401(k). This instantly offers a whole new level of tax benefits for investors, even enabling tax-deferred or tax-free real estate debt investing.
Those that buy non-performing loans through self-directed retirement plans can also leverage their own assets with non-recourse loans for more diversification and rapid wealth building, in addition to receiving attractive yields in the form of monthly cash flow.
However, there are still a few essential resources required for maximizing returns through self-directed 401(k) and IRA plans and retaining the best protections these retirement vehicles offer.
The first is choosing a plan administrator, like Equity Trust that will act as the intermediary required to comply with IRS rules. An administrator can also help you roll over your current IRA or 401(k) to a self-directed real-estate plan.
Secondly, while the market may be ripe for acquiring both residential and commercial mortgage notes and perhaps even consumer debt, rushing in blind perhaps offers even worse odds than the tables in Vegas. Due diligence is essential, but even before that some basic market research using data from Loopnet or CCIM is smart, as is digging into the best sources of notes through software like BankProspector.
Finally, for those intending to buy non-performing real estate loans as a gateway to seizing selecting an effective full service property management firm is a must. This will not only keep investing pleasurable but ensure investors remain in compliance with IRS rules for minimizing tax liability.