Paperwork discipline is what made an 87k second-lien book work inside a Roth
Started this in 2022 with 87k of Roth money after a year of reading and getting most of it wrong out loud in threads here.
Book as it stands: six notes, all seconds behind institutional firsts on owner-occupied houses in two midwest metros, bought at discount from a seller who assembles them in small tranches. Average purchase 14,500 against average face of 19,200. Blended yield on cost around 13 percent if all six perform, which they have not.
What actually happened: four pay monthly without any contact from me. One paid off early when the owner refinanced, which returned 16,100 on a 13,200 basis in fourteen months. One stopped paying in month nine.
That one is the part that nearly broke it. Second position, borrower current on the first, so I had no cheap remedy. I had 9,000 in account cash and a servicer who quoted work that would have eaten most of it. I ended up taking a modified payment plan at a lower rate that stretches the term out four years. Basis 15,400, I will probably get face plus reduced interest eventually. Not a loss, not what I underwrote.
What I would keep: all income here is interest, so it sits on the exempt side and nothing has triggered a 990-T. No borrowing inside the account, so no debt-financed income question at all. That was deliberate after reading enough threads about UBIT on levered positions.
What I would change: I held 9,000 in cash against 78,000 deployed. That is too thin for seconds. Should have been closer to 20 percent idle.