Do I need 100% of the home price to use self-directed IRA?

[Ian MacDonald]

Hello,

I have a decent amount of money in my 401k from my last company, one that I departed about a year ago; around 200K. I am interested in moving it to a self directed IRA to invest in real estate. I have seen contradictory information posted in different places saying that you probably cannot finance any of the home purchase if using a self directed IRA. Is it true that I would need 100 percent of the price? I was hoping it would be possible to only bring 30 or 40 percent and then make payments on the mortgage from the self-directed IRA.

Ian

[Dmitriy Fomichenko]

@Ian MacDonald,

No, you don't have to buy all cash using self-directed IRA. You can finance the purchase, BUT because as a "disqualified person" per IRS rules you are not allowed to provide a personal guarantee - the loan must be non-recourse. There is a handful list of lenders who specialize in this kind of loans (your local bank won't be able to help), you can find comprehensive list here:

https://www.biggerpockets.com/...

Another thing to keep in mind is that the use of leverage in an IRA will result in Unrelated Business Income Tax. This can be avoided by using self-directed Solo 401k plan, but you must have legitimate self-employment activity in order to qualify for this vehicle. 

Much success to you!