Self-directed IRA and hard money?

4 Replies

Hi All,

My husband and I are new investors. We have set up our Self-Directed IRA account and we are ready to go. The "frustrations," if you will, are abundant and we need some experienced direction. For obvious reasons, we would like to buy new builds, more specifically, pre-builds, preferably duplexes, tri-plex, quads. We cannot go through the custodian bank for this process. They will refi after it is built, but won't do a construction to permanent loan. The custodian bank also will not do loans on things that need full rehab. Essentially, to use this money, it has to be an existing building, and in good condition, which reduces the money making part of this venture.

The obvious solutions would be - take out a traditional loan(s), which defeats the purpose of the SDIRA, get a HELOC on our personal home (we can't as it's in the middle of a remodel right now), use private or hard money. With my limited (newish) networking sphere, and lots of research, I am unable to locate any hard money lenders that will do non-recourse loans.

Thank you to any and all for your insight!

@Lorrie Dujmovich

Unfortunately I'm not aware of any lenders who would be willing to finance pre-construction non-recourse for the IRA. I think your only choice is to find small local or individual lenders. This strategy will definitely be a challenge.

If you decide to change your strategy and buy existing properties, here is a list of lenders who will offer non-recourse loans to retirement accounts:

Another thing to keep in mind that when you use leverage in an IRA - the income and profits from the leveraged portion of the property will be subject to Unrelated Business Income Tax, so be sure to run the numbers with your CPA to understand the impact of that on your bottom line.

As self-employed broker you may be eligible for truly self-directed Solo 401k plan. This plan is exempt from UBIT tax on leveraged real estate, has contribution limit nearly 10 time higher than an IRA, does not require a custodian which means there is no middle man, checkbook control, and all custodian, transaction and asset based fees are eliminated plus more!

If you are new to real estate investing, buying your first property in a retirement account is do-able but makes things more complicated as there are extra steps you need to make sure you are 100% compliant.

I would suggest making things simpler and investing in your own name and when you have more experience to experiment if its possible to invest with a retirement account.