Partially Financing Property with Self-Directed

11 Replies

I have a self directed that I can purchase real estate within. Can partially finance a piece of real estate that I want to purchase with the self directed? I have enough in the plan to purchase the property straight out but would like to pay only about 50% of the total cost now.

Hi. I hope I'm answering your question correctly. Yes you can partner with your self directed IRA. I did it with a property in St. Louis and we each own 50%. I hope that helps.

@Cornelius Amos  

Yes, you can finance investment property that you are buying with your self-directed IRA. The loan however must be non-recourse, you are not allowed to provide personal guarantee for the loan so conventional loan will not work.

Also, you need to be aware that the income coming from the financed portion of the property will be considered Unrelated Debt-Financed Income (UDFI) and will be subject to UBIT (unrelated business income tax).

The alternative might be using self-directed Solo 401k Plan which is exempt from UBIT on leveraged real estate. This is one of several major advantages of Solo 401k plan over SD IRA.

Hope this helps. Search the forum for more discussions on this topic.

@Cornelius Amos

I think you're talking about acquiring a mortgage in the name of the IRA, correct?

Yes, this is possible and many investors take this path. You are required to use a non-recourse loan because the IRA cannot be personally guaranteed.

When using leverage, your IRA will be subject to UDFI, a special tax that's derived from the debt leveraged profits. Be sure to learn how this will effect your retirement plan as well as investments.

You should also consider looking into an Individual 401k as it comes with far more
benefits than an IRA. It is also exempt from UDFI in a buy-hold scenario.

Best of luck!

Thanks to the both of you! People like you are the reason why the Internet is one of the best inventions known to the world!

Originally posted by @Cornelius Amos:

Thanks to the both of you! People like you are the reason why the Internet is one of the best inventions known to the world!


The answer @Dmitriy Fomichenko gave you is spot on @Cornelius Amos . Additionally any repairs that need to be made will have to be paid out of your self-directed IRA in proportion with the percentage split of the property that your self-directed IRA owns, so make sure you have a reserve amount available (if you pay for any repairs "out of pocket" this can jeopardize the status of your IRA.)

This is great information! Question, is it relatively easy to transfer money from a "regular" Roth IRA into a SDIRA? Also, are most companies that focus on SDIRAs generally on the "up-and-up" or do you have to be really careful?

@Frankie Woods  

Yes, it is very easy to transfer your Roth IRA into self directed Roth IRA.

Some custodians are more knowledgeable than others and you should always seek help when you are not sure. However, ultimately you will be responsible if you commit prohibited transaction in your IRA.

@Dmitriy Fomichenko  Thank you for the info.  I will hopefully use this very soon.

Great feedback and info from this question. I have always wondered about how to go about switching to a self directed IRA but from reading the sense financial website, there are more programs and strategies that can be beneficial to the investor...

Hi Frankie-

There are always (in every industry) companies out there that can give the rest of us a "bad name" but it is important to understand the difference between a custodial provider and one of Checkbook Control especially as it relates to real estate investing. The ability to have your retirement funds in a bank of your choice is an advantage over those relying on filling out paperwork and contacting a 3rd party each time action needs to be taken, especially when making an offer (if you can't get the property to begin with, the plan has zero value, right?).

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