Self-directed IRA property as collateral?

Question

We have some undeveloped land (adjacent to the property on which we live) that is in a self-directed IRA.  Is there a way to use this property as collateral on a bank loan, or is it not possible since it is in a trust?

Leigh Ann Smith · Answer

Ahhhh, I think I get it now!  That's a very good explanation, @Dmitriy Fomichenko   , thank you.  I guess we'll just pony up the 20% and deal with it.  :-)

The good news is that we are 57 years old.  It won't be long before we can get our hands on that IRA property!

Dmitriy Fomichenko · Answer

Terry, I agree with you that it will be very difficult (maybe impossible) to borrow on a land from the bank. Perhaps I misunderstood your earlier comment. If you were implying that no bank will provide a non-recourse loan on a land you might be correct. But when I read it it seemed to me that you were saying in general terms that non-recourse loan can be made only by private lender. We work with several banks offering non-recourse financing on residential real estate starting at 30% down and rates from about 5%. But I don't know their lending policies on vacant land.

Dmitriy Fomichenko · Answer

@Leigh Ann Smith

If I understand you correctly, you are considering personally buying investment property and asking if you can use the property that you own in your IRA as a collateral. The answer is no.

Now, let me use this example: if you have an IRA with $50,000 in it and would like to purchase property valued $100,000 you can do that by obtaining non-recourse loan for $50,000. There are several banks offering this program.

Other example when you own property valued $100,000 in your IRA you could do a cash-out refinance by obtaining non-recourse loan, where the property is the only security for the lender. So if you pulled $50,000 cash out from the refinance you don't get to personally use the cash - it belongs to your IRA. You can use those funds for investing inside of your IRA. Still it will not work in your example as it is my understanding that you are looking at buying investment property personally.

Terry Lewis · Answer

Hi all,

Not trying to create an argument. IRA's, or pensions can borrow money as long as the money is not commingled. It may not be impossible but good luck borrowing on land from a bank.

Terry Lewis

Leigh Ann Smith · Answer

Hi @Dmitriy Fomichenko,  I am confused.  In the first message, you said that the property cannot be used as collateral, but in the next one you said there are banks who are offering non-recourse financing for properties in an IRA.  In the latter post, are you talking about something like refinancing a property in an IRA  to take out equity?

Just to clarify, @Terry Lewis , our home is not on the IRA property.  The IRA is undeveloped pasture land that is adjacent to the property on which our home is located.  It is on a separate deed and is held by an IRA trust.

Just trying to think of ways to get out of paying a down payment on our first investment property.  Our home is almost paid off, and we just want to own it free and clear, so we are not going to borrow against it.

Glad you like my signature line, Dmitriy!

Dmitriy Fomichenko · Answer

Terry, this statement is incorrect, there are banks who are offering non-recourse financing for properties in an IRA or 401(k). With very reasonable terms compared to private lenders. Feel free to send me PM and I'll get you the list.

Terry Lewis · Answer

Hi LeighAnn,

A couple of things that are not clear. Is the property you live in in the IRA? Thats a violation if so, Or the adjacent property is in the IRA? You can get a loan in an IRA but it has to be a non recourse loan (no banks currently doing those) so needs to be private and if there is any debt service only the IRA can service debt.

That is the best answer with the question as I understand it.

Terry Lewis

Dmitriy Fomichenko · Answer

@Leigh Ann Smith

unfortunately you can not use property that is in your IRA as a collateral on the loan.

P.S. I love your signature line

Self-directed IRA property as collateral?

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