Refinancing within self directed IRA

[Seth Griffin]

Hi Friends,, we are going to buy a property and fix it up using funds from a self-directed IRA. Once done we'd like to refinance part of it for other investments. Do lenders allow for this within a Self-directed IRA? Are there other things we should consider? I understand there's UBI tax for leverage real estate profit, but anything else apart from this?

[Brian Eastman]

@Seth Griffin Your IRA can absolutely refinance a property that it owns to pull out equity that the IRA (not you) can use for other projects. The loan will need to be non-recourse, and as you note, there will be some nominal tax on the debt-financed portion of the income.

Definitely reach out to some of the specialty banks that offer non-recourse loans such as First Western Federal Savings in SD and North American Savings Bank in MO.  The terms may be different than what you might expect in a conventional re-fi, so you will want to include those numbers in your projections.  

You will also want to have a CPA on your team.  UDFI is tricky, and in the scenario you describe, will - most likely - apply to income on the property acquired with the borrowed funds, not the original property.

Lastly, some lenders will do portfolio loans.  That may not make sense with 2 properties, but as you scale, it might.