San Diego, CA · Member since 2016 · 2 posts · 1 vote
Hi All,
Just starting out here. I live in sunny San Diego and would be interested if anyone knows if you could use a self directed IRA to fund the down-payment of an FHA loan for a multifamily home (2-4 units).
A self-directed IRA may purchase a property using a mortgage, but the mortgage must be non-recourse. That means there is no personal guarantee from you and you are not qualifying for the loan - the property is.
There are specialty lenders that do such loans, including North American Savings Bank and First Western Federal Savings.
A self-directed IRA may purchase a property using a mortgage, but the mortgage must be non-recourse. That means there is no personal guarantee from you and you are not qualifying for the loan - the property is.
There are specialty lenders that do such loans, including North American Savings Bank and First Western Federal Savings.
@Brian Eastman As a general rule, how much of a rate premium are those specialty lenders going to charge compared to, say, a 30y FNMA loan in your personal name or (more likely) a typical 7 or 10 year commercial loan?
I realize there's tons of variables, but are we talking 50 basis points? 100? 300?
Appreciate any input you've got - trying to establish scenarios when this tool would be the one to use.
Update: I poked around Brian's website and found the following, in case others are interested:
Down payment of at least 30%. Condos as high as 50%
10% – 15% cash reserves in the plan at the time of the loan
Terms range from 5/1 arms to 25 year fixed rate loans
Rates will generally be 1% – 1.5% higher than a typical investor loan with a personal guarantee. A range of 4.75% – 6.25% is common, depending on the loan terms.
Clean, cash flow properties work well. Options are limited for properties requiring extensive repairs or raw land.
Prior to today's rate increase from the FED, typical NR loan rates were between 4.75% & 6.25% depending on the note terms. They have been in that range for some time. They do not tend to bounce around as much as homeowner loans, as they are offered by portfolio lenders, not simply originated and sold off.
The ability to leverage IRA dollars and generate a higher cash-on-cash return as a result is well worth the small additional cost of capital in an IRA scenario.
When was the last time your IRA used leverage to purchase stock of Apple? See my point?
IRA investing is entirely different from personal investing in real estate because of the different tax treatment. Comparing, as you suggest, when an IRA would be the right tool to use relative to a personal investment in real estate is comparing apples and oranges. The comparison that makes sense is; "When does it make sense to invest an IRA in real estate instead of leaving it in the stock market?" That could be followed by; "Does it make sense to leverage an IRA investment in real estate as opposed to paying all cash?" The answer to the latter question will depend on the risk/reward scenario of the specific transaction.
@Brian Eastman Yeah, gotcha - makes sense. Almost all the hands-on projects I've taken on are complicated renovations. There's no way that could make sense without checkbook control of an SDIRA (I'm familiar with the LLC model, which seems like it could work). Also complicated by presence of outside investors, level at which I'm personally supervising the project, and a concern that more capital can be needed after project starts (but may not be available in the IRA).
In my own situation, by "right tool" I was thinking about which of our past physical projects this would make sense for, or whether it'd make more sense to focus the SDIRA on lending money only.
Regardless, thanks for educating us! Clearly I'd have to spend some more effort to figure this out for my specifics.