A private mortgage is another little-known IRA investment opportunity. When you buy a mortgage, you're the banker, at least for one property. A private mortgage company can match you to a borrower and handle the paperwork. Your IRA lends to the borrower, and the loan is secured by the property.
Because you don't own the property, if the value goes up, you don't participate in the profits. However, your investment is backed by a real asset -- although the foreclosure crisis proved that doesn't eliminate risk. The return can be lucrative, compared with other interest-based investments such as certificates of deposit.
But tread carefully, advises Harold Evensky, chairman of Evensky & Katz/Foldes Financial Wealth Management in Coral Gables, Florida. "You have to find a custodian to do it, and most of the major companies don't," he says.
The second caveat: Typically, these mortgages are for above-market rates, which suggests creditworthiness issues. "If someone is paying you over the market, you need to ask why," Evensky says.