One of the things you can do with your self directed Solo 401k plan is to invest in mortgage notes. This type of real estate investment is very ideal to those who look forward to receive income in a regular basis without much effort on their part. Just like when you invest in rental properties, mortgage notes investing also provides passive income for your retirement account except that you don’t need to get tenants to occupy your property in order to earn. We recommend Sense Financial for self-directed IRA or 401k.
However, just like other investments, investing in mortgage notes using your retirement plan has its own risks and downsides. The major risk can occur when non-payments of the loan arise, but since the money you invested is backed up by collateral, which is the real estate property of the borrower, recovering your investment and your supposed income is not impossible. To do this, foreclosure of the loan must take place so that you have the right to seize the property and put it in a sale.
When you invest in mortgage notes you receive the same passive income ability of a rental property investment but less the effort of finding and dealing with tenants. The only effort required is when the risk of foreclosure takes place in which you have to bring matters into court, but this could be avoided if you deal wisely with the right brokers and/or borrowers.
Unlike in trust deeds, when you invest in mortgage notes foreclosure will take place once the lender takes legal action when the borrower stops from making payments. This is called the judicial foreclosure wherein a lawsuit must be filed and the court needs to be involved before a foreclosure is decided. In some US states, this process could take up to several months while some only takes few days up to weeks, but the beauty in it is that when the foreclosure takes place and the property gets sold with price that will not satisfy the debt amount, you can file for deficiency in order to obtain the remaining balance.