IRA as down payment

9 Replies

Hi all,I 

Good afternoon. I love the board. I've been reading through the posts and have learned quite a bit.

I am in the mortgage industry and know general guidelines. I'm looking to try and figure out ways if using my IRA as a down payment for a rental? I do realize investment properties need 20% down. I have that 20% down available to me in an IRA that was a previous 401K from a previous company.

My goal is to purchase a $200K investment condo on the beach where most of the units are investment properties.  I have three questions. 

First, what kind of options do I have to take that 50K from the IRA and use towards the 20% down to purchase a condo? I say 20% because I am familiar with the conventional down payment of 20%.

Second, with these investment condos, how can I get an good idea on what the cash flow is? Will sellers ever provide tax returns or will the property management company provide rent-rolls and how do I know that they are accurate? 

Third, what are the rates and terms (DTI, downpayment) for hard or private lenders these days? I have 820+ credit. In my business we always looking at DTI, so is this something that private or hard lenders do?

Thank you,

Kevin

@Kevin Parnella

You may consider pooling IRA and personal funds to invest in real estate under a tenants-in-common arrangement; however specific rules apply. You could also look into only using IRA funds in conjunction with a non-recourse loan to invest in real estate. You could also look into transferring the IRA to a solo 401k and then investing the solo 401k in real estate also using a non-recourse loan as Unrelated Business Tax does not apply to a solo 401k but it does apply to an IRA. In sum, there are many options each with their pros and cons.

Hi @Mark Nolan

Thanks for the input. If I have 20% down in my IRA, how can I use those funds as a down payment without acquiring tax consequences? I cannot use my company's 401K so that option won't work. I also cannot do the self-directed IRA because I only have 50K and purchase price is 200K.

thank you sir.

@KevinParnella

Mark touched on most of the options using your IRA money. However one other option would be to just take the money as a distribution and pay the taxes and 10% penalty if you are not 59 1/2 years old. If you personally need the cash flow this option should be considered if not, build your retirement account.

Most rental offices will feed you higher income numbers quoting potential income rather than actual income because they want your business. Get the schedule E from the tax returns and also get the return they actually filed from the IRS.  Any mortgage broker can help you get the IRS form for the seller to sign so you can get the actual return. 

Most private and hard money lenders want a minimum of 30% down and charge on the high side 15% and 5 points or low of 8% no points. Experience, cash flow, DTI, appraised value all feed into the equation but value and LTV are of most concern.

I hope this helps. Good luck. 

@Kevin Parnella

Another option is to buy the property in your self-directed Roth IRA with 20% of the total price with the checkbook SDRIRA LLC taking ownership of the property. Borrow a non-recourse loan at 50% LTV. Then accumulate cash value in a life insurance policy (like the right type of IUL or whole life policy) or use cash as a loan for the difference. Work with your CPA and financial advisor to see if something like a 72-t rollover from an IRA to a Roth IRA makes sense. Lot of people use self-directed IRAs but don't realize the tax on withdrawal, Required Minimum Withdrawal rules at age 70.5 or provisional income creation that would force you to pay 85% social security income tax. Life insurance is beset with problems too. 95% of the policies are no good. Need a mutual insurance company that is also a non-direct recognition company. The problem with a good whole life policy is usually the rate to borrow money is 5% to 10% and variable. IUL can get .75% to 15%returns and a good policy can have a loan out rate as low as 2%. I am not a financial advisor but I am telling what I have used. Problem is most financial advisors don't get it. Had to study it on my own.

Mixing investments with life insurance is very poor financial choice [IMHO], those policies are mainly designed to benefits sales agents and companies who sell them. A word of caution to readers: if you are considering something like that be sure to do further research and read opinions and studies or independent parties (many studies and marketing out there is by companies who sell those products and are biased and you have to exercise discernment to sort out that junk). 

P.S. @Ryland Taniguchi I don't have any intention of engaging in a debate about this topic, since you've mentioned in unrelated topic I just had to give my two cents. 

Originally posted by @Dmitriy Fomichenko :

Mixing investments with life insurance is very poor financial choice [IMHO], those policies are mainly designed to benefits sales agents and companies who sell them. A word of caution to readers: if you are considering something like that be sure to do further research and read opinions and studies or independent parties (many studies and marketing out there is by companies who sell those products and are biased and you have to exercise discernment to sort out that junk). 

P.S. @Ryland Taniguchi I don't have any intention of engaging in a debate about this topic, since you've mentioned in unrelated topic I just had to give my two cents. 

 Not really a debate. I had the exact same paradigm as you 6 years ago. Most life insurance is a rip off especially variable life. I think most investors think the same way.

I was biased about life insurance to I was around my 60th real estate deal and it has helped me do more real estate particularly in the niche of working with private money investors who want to invest their cash value in their life insurance. 

If you prefer to pass on this topic like most RE investors do, less competition for me. Just trying to add some outside the box thinking for creative investing.

Originally posted by @Kevin Parnella :

Hi all,I 

Good afternoon. I love the board. I've been reading through the posts and have learned quite a bit.

I am in the mortgage industry and know general guidelines. I'm looking to try and figure out ways if using my IRA as a down payment for a rental? I do realize investment properties need 20% down. I have that 20% down available to me in an IRA that was a previous 401K from a previous company.

My goal is to purchase a $200K investment condo on the beach where most of the units are investment properties.  I have three questions. 

First, what kind of options do I have to take that 50K from the IRA and use towards the 20% down to purchase a condo? I say 20% because I am familiar with the conventional down payment of 20%.

Second, with these investment condos, how can I get an good idea on what the cash flow is? Will sellers ever provide tax returns or will the property management company provide rent-rolls and how do I know that they are accurate? 

Third, what are the rates and terms (DTI, downpayment) for hard or private lenders these days? I have 820+ credit. In my business we always looking at DTI, so is this something that private or hard lenders do?

Thank you,

Kevin

 Why BUY, instead LEND?

See 

https://www.trustetc.com/investment-options/privat...

https://www.trustetc.com/search-results.aspx?searc...

LEND and do not deal with tenants, toilets, lawsuits, etc.