Using an IRA to Finance an Investment

2 Replies

I have yet to purchase my first RE investment and I have been looking at different financing options, along with still educating myself in other areas.

What are your thoughts on using funds from your IRA to finance a RE investment?

What is your experience with this type of financing and would you recommend it? TIA

You cannot use money in your IRA to buy real estate for yourself. Your IRA cannot loan money to you or any other "disqualified person". Nor can your IRA be used as collateral for a loan you take out in your own name. If your IRA engages in a transaction like this, called a "prohibited transaction", the ENTIRE IRA is considered to be immediately distributed and will be subject to taxes and penalties.

It is possible to have an IRA buy real estate. It is possible for your IRA to get a loan to help purchase the real estate. Its a somewhat complicated topic, and you are limited in what you can do with respect to the property. You cannot live in it or work on it, though I have been advised by an attorney that managing it is acceptable. There are also tax implications and buying leveraged real estate in an IRA can result in the IRA having to pay taxes. There are numerous posts in the SDIRA forum that discuss what you can and can't do in a (truly) self directed IRA.

Nicole, 

Jon eloquently provided you with good summary about SD IRA. I just would like to add that being self-employed as a real estate agent you qualify for a truly self-directed Solo 401k plan, which is superior to SD IRA. Some of the advantages that it offers are:

- High contribution limits (up to $60,000/year per participant)

- Ability to access your retirement funds tax free and penalties free before retirement via participant loan feature

- Exempt from UBIT taxes on leveraged real estate

- Tax free investing using Roth sub-account

- Checkbook control over your funds (no need for a custodian)

and more!