A Roth funded private note pays every month and stays locked for 22 years, and that trade is worth understanding

Eleven days is actually fast, mine ran 19 days the first time.

The Carolina market is interesting for this because the rehab to rental pipeline there is still producing borrowers who actually know what they are doing, which makes the repeat operator piece matter more than the rate. Picture a 10 percent first on a 63 percent LTV in Gaston County inside a Roth, six month term like yours, where the borrower comes back twice more over the following two years. That repeat business inside a tax sheltered vehicle is the part people underestimate. The yield compounds, and so does the relationship, and the second and third notes with the same operator are easier to underwrite because you already know how they handled a draw schedule under pressure. The 22 year piece is where the conventional framing breaks down. Most people mentally account for the illiquidity as a cost, the way you did. That stops making sense once you model what 10.5 percent tax free, reinvested into successive six month notes, actually produces at year 20 versus the same capital in a taxable brokerage earning the same gross rate but paying ordinary income on the interest every year. The gap is far from marginal. At a 32 percent bracket the taxable account is compounding at roughly 7.14 percent effective versus the full 10.5. On 80 thousand dollars over 20 years that works out to somewhere around 220 thousand dollars of difference in terminal value. Seen that way, the illiquidity stops looking like a cost and starts looking like the product.

The math on the compounding is real but I'd push back on framing the illiquidity as just "the price of the wrapper." For note paper specifically, the reinvestment risk is the actual problem people under-think. Six-month term on that note means you're back to deployment mode by September, and if your custodian runs eleven days on the direction letter side, plus the time to source the next deal, you could be sitting on cash drag inside the Roth for 30-45 days between notes. At 10.5 percent annualized that dead cash is costing you real compounding ground, and over a 22-year horizon that friction compounds against you just like the returns compound for you.

What I do instead is structure for 12-month terms minimum, even when borrowers push back, because the custodian friction is a fixed cost per deployment and I want to amortize it across more months of yield. I closed a 12-month first at 10 percent on a 62 percent LTV in middle Tennessee last August, same Roth structure, and the math on fewer deployment cycles over the life of the account actually beats the slightly higher coupon on a 6-month note once you account for realistic cash drag between closings. The 65 percent LTV on yours is solid and I am not arguing the credit quality, just that the duration choice is doing quiet damage to the compounding story that doesn't show up until you model the full cycle including idle periods.

What happens to that Roth if the borrower defaults in month four?

The 22-year lock should bother you far less than picking the wrong custodian first.

Six-month paper rolling inside a Roth sounds clean until the borrower wants an extension and your custodian needs another week to approve it.

The one thing that never works is treating the direction letter as a same week task.