Can you get a loan when purchasing real estate with Roth IRA

Question

Hello,

We're looking into purchasing a 2nd investment property, this time using our (wife & I) Roth IRA founds. The properties I'm looking at cost more the we have (combined) in our Roth IRA accounts so wanted to know if you can get a loan for the "gap" and how that works; eg. the property costs $150K & we have $110K... so would need a loan for the $40K gap.

If this is possible, are traditional lenders able to work with us or do we need to find someone "special"? I presume that closing costs etc. have to come out from our IRA account thus decreasing the amount we have to invest -> would have to borrow a bit more to accommodate for the difference.

Any info would be greatly appreciated.

Jeff Rabinowitz · Answer

You can borrow in your IRA but the loan must be non-recourse (you cannot personally guarantee the loan) according to IRS rules. A non-recourse loan gives the lender the right to repossess the securing asset if the loan is not repaid but the lender may not make claims against the borrower's other assets. Of course, lenders will require lower loan to value ratios for this type of loan to protect themselves. Search for non-recourse lenders.

Using loans may cause the UBIT (unrelated business income taxes) rules to come into play. These taxes can be manged fairly easily but you are well advised to consult with an accountant or other professionals (I am not a professional adviser)  before you travel down an unfamiliar path.

Dmitriy Fomichenko · Answer

@Matt Aspen

Jeff is absolutely correct, when using leverage to acquire investment property in your retirement account the loan must be non-recourse. There is only handful of lenders specializing in these types of loans, I compiled the list here:

https://www.biggerpockets.com/blogs/2810/50272-lis...

Many private lenders will also do non-recourse loan as well. Hope this helps.