It is pretty straight forward, similar to a regular conventional loan, the only thing here is you personally don't qualify, the property would have to qualify. Typically down payment is higher, but you also increase your ROI because of leverage.
Here is a list of lender I pulled together over the years who offer such loans:
Please note that if you do a loan with an IRA the portion of the income will be subject to UBIT tax, whereas truly self-directed Solo 401k is exempt from UBIT on leveraged real estate.
The use of debt-financing such as a mortgage in your IRA is a more complex strategy, but one that can really boost the returns of your IRA.
There are two key considerations:
The debt must be non-recourse, meaning no personal guarantee from you. As Dmitriy noted, there are a handful of banks that do such loans. Expect higher down payment amounts, reserve requirements and interest. The loan terms will be more conservative than what you could do personally.
The use of borrowed funds within an IRA generates Unrelated Debt-Financed Income, which is taxed. The tax burden is generally nominal. Being prepared in advance, both by understanding the impact of the tax on your returns and the administrative requirements that will come into plan is important.
The bottom line is that your IRA is getting to use leverage, and will achieve a higher cash-on-cash return as a result. You up the risk and complexity a bit, but should see a real reward to doing so.
Using leverage in an IRA is a great strategy. If you happen to qualify for the Solo 401(k) plan type by being self-employed and having no full time employees, then the tax on UDFI is exempted. Again, the tax is not significant, so spending a lot of time or money to "become" self-employed if you are not already is not typically productive.
Thanks Brian for your accurizing clarity. I have always had a passion for real estate but previous options disallowed it. I even entertained crowdfunding in REIT's. But that is also a static, mechanical investment instrument. Real property has soul and a significant life contributing pulse. I'm located near Cheyenne, Wyoming so perhaps we may correspond more in the near future. Aloha, Eldon Hongo