Please help a newbie! Using IRA to invest?

4 Replies

Hi I am new here let me start off by saying I am in the middle of my first flip and i do all the construction work myself so money is a little tight but i believe it will pay off..... I hope. Let me get to my question I will say its been a good day I just found out i have 11k in a 401k that I didn't know I had! This is definitely a surprise, a very pleasant surprise anyways I am going to lose 4k of this if I cash it out I would rather keep all of it but how do I do it? I have heard i can switch it to an IRA and use it to invest but what are the stipulations and how do I go about doing this? Can i use this money to invest in my current flip? Can I use it for a down payment on the next property? Can i buy notes with this? Any help or advice it greatly appreciated this is my first post and would like to thank everyone in advance.

Casey 

Hello @Casey Young  and welcome to BP!

You need self-directed IRA or self-directed Solo 401k to invest your retirement funds in non-traditional assets such as real estate.

There are some limitations that you need to be aware of, one of them is that all transactions must be 'arms-length' and they can not involve 'Disqualified Person', which is you and your immediate family members. Therefore you are not allowed to invest into your current flip.

You could use funds in your IRA as down-payment only if you are buying the property inside of an IRA, not personally. In this case you must use non-recourse loan.

Investing in notes probably would be most suitable in your case because of the smaller amount you have to invest. It is unlikely you can get a property with just $11K.

The subject of self-directed retirement accounts have been discussed on this forum extensively, I suggest you take the time to search and read other threads. 

My understanding is that your IRA cant invest in your personal renovation projects. You can use it to invest, loan money to others. I have a couple lenders that fund deals for us with IRA funds. I am sure someone else will explain this in more detail for you. You can also do a search in the upper right hand corner, enter IRA, I am sure you will find a lot of information.

401k, have you checked into borrowing against the 401k, may be an option for you. I have a partner on project we are putting together that is borrowing 10k against her IRA. Something worth checking into.

BTW, Welcome to bigger pockets, and congratulations on doing your first flip!

@Casey Young  

You should check out borrowing against it. Usually you can borrow 50% no penalty and you pay yourself back with interest usually 3%

Good luck

Paul

thank you for all the replies it's much appreciated!

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.