How to Invest in Mortgage Notes With a Self-Directed IRA

Buying property is not the only way a self-directed IRA can invest in real estate. An IRA can lend money to a borrower and hold a promissory note secured by real property.

This is a common approach among IRAR investors. In IRAR’s review of 1,997 self-directed IRA real estate transactions completed in 2025, real estate notes accounted for 56% of purchase activity, compared with 44% for direct property purchases. That does not mean a note is simpler than owning property. It has a different set of risks and responsibilities. See IRAR’s 2025 real estate investment findings.

What is a Mortgage Note / Real Estate Note?

A mortgage note is a promissory note secured by real estate, formally called a promissory note. These are promissory notes backed by either a Deed of Trust or a Mortgage Deed (the name changes depending on where in the country you’re located). A promissory note is a promise to pay or repay a certain amount of money, either at a specific time or in regular installments. A Deed of Trust or Mortgage Deed, is a document that places a lien against the property once it has been recorded at the local county office. So instead of buying real estate through a direct purchase, investors are loaning money from their IRA to another investor essentially acting as the bank but in this case, since it is secured by real estate, if the borrower defaults on the loan the IRA can foreclose on the property.

Relevant: Buying Real Estate With A Self-Directed IRA

How to Invest in Real Estate Notes: Step-By-Step

The self-directed IRA is the lender or note owner and holds the investment. You identify the opportunity, evaluate the borrower and property, negotiate the terms, and work with IRAR to complete the transaction for the account.

Step One: Identify the Borrower and Property

Identify the borrower and the property that will secure the loan. Investors may find opportunities independently or through a broker, private lender, or real estate investment group.

Before committing IRA funds, review the borrower’s ability to repay, the property’s value and condition, existing liens, unpaid property taxes, loan position, insurance coverage, and the proposed loan terms. The borrower and other parties involved in the transaction must not be disqualified persons to the IRA.

Step Two: Open and Fund the Account

If you do not already have an account, open a self-directed IRA with IRAR and fund it through a contribution, transfer, or rollover. The account must contain enough available cash to cover the investment and applicable transaction fees before IRAR can process the purchase.

The IRA owner should not advance funds personally or reimburse themselves after closing. Investment funds must come directly from the IRA.

Step Three: Prepare and Submit the Documents

If Investing in an Existing Note

For an existing note, the required documents are the same, you will need to submit any of the applicable documents listed above. However, your existing promissory note will come prefilled with the previous lender’s information and you’ll need to update these documents to reflect your IRA as the new owner. You do that by adding an amendment to each document, showing the updated lender (your IRA).

Specifically, you’ll need to submit an amendment for the following documents:

• Your Promissory Note
  • Since you are purchasing an existing note, the lender’s name will not be listed on the note itself. You’ll need an Assignment of Note/Note Endorsement showing the newly reflected lender is your IRA (vested as listed above).
• Your Deed of Trust / Mortgage Deed
  • This document also won’t have the lender’s name listed. You’ll need to provide an Assignment of Deed of Trust/Assignment of Mortgage, showing the loan being transferred from the existing lender to IRA Resources.
• Your Title Commitment or Preliminary Title Report from the title company (as applicable)
  • The insurance will be in the name of the previous owner. This is okay for the term of the insurance but must be renewed in the name of the IRA.
  • There should be a note under “exceptions” stating a new deed will be recorded in the name of the new borrower.
    
    

No matter if your note is new or existing, it’s incredibly important that you verify the information is correct and matches on all paperwork, the information written on the Buy Direction Letter must match everything on all accompanying documentation. Any discrepancies will require a follow up from IRA Resources, which may delay your transaction.

We’ll specifically be checking the borrower’s name, the property address (if applicable), the loan amount, maturity date, interest rate, and payment amount on all documents to confirm before processing your transaction. Also, you must make sure the vesting on every document is correctly listed as “IIRAR Trust FBO [Client Name, Account #]”, as an incorrect vesting can cause problems down the line.

We need these documents to verify your note is properly vested in the name of the IRA and secured by real estate, as intended, before we’ll send out the requested funding.

Once this process is finalized and your money has been received by the borrowers, that’s it, you’re done! You’ve invested in a real estate promissory note.

Relevant: Partnering Your Self-Directed IRA: Using Someone Else’s Money to Invest in Real Estate

IRA rules and disqualified persons

The borrower and other parties to the transaction cannot be disqualified persons to the IRA, and the transaction cannot provide a prohibited personal benefit to the IRA owner.

Disqualified persons generally include the IRA owner’s spouse, ancestors, lineal descendants, spouses of lineal descendants, fiduciaries, certain service providers, and some businesses or other entities connected to those people. The complete definition is broader and more detailed than a list of relatives, so confirm the parties and ownership structure before committing the IRA.

Conclusion

Remember: when investing in real estate notes with your self-directed IRA:

• The note needs to be vested in the name of the IRA, not IRA Resources’ or your personal name.
• Make sure the borrower has the correct address for IRA Resources, this is where they will be sending payments, so you’ll want to verify they have the right information.
• Do not lend to a disqualified person. This can result in your IRA being forcibly distributed, with the full amount immediately taxable. A disqualified person is you, your spouse, your children, and any other lineal ascendants or descendants.
• IRA Resources does not service the loan for you. You can hire a loan servicing company if you want, but you are not required to do so.
• We don’t keep track of payments, you are responsible for verifying borrowers are paying as agreed according to the original note agreement, and for calculating the payoff amount. You can access information on deposited payments via your online IRAR account.
  
  

Real estate notes are the low-hassle solution many self-directed IRA investors turn to, especially if you’re interested in real estate but don’t want to deal with all the extra work. No matter your strategy— with self-direction, you’ve got some options.

To learn more about investing in real estate notes with your self-directed IRA, schedule a free consultation with one of our Certified IRA Services Professionals (CISPs). Happy investing!