So when I came across self directed IRAs it really intrigued me. I have a little bit of money in my IRA, but no real savings, and poor credit limiting my ability to get into the game without clearing that up a bit. I am working in property management, have a pretty decent grasp on how buy and hold investing works, but am not quite in a place to do so myself. Self directed IRA seemed like a good idea, but I feel like I need more in there to make it work, and investing through a SDIRA through financing seems like it can be disadvantageous, or at least incur other fees, such as UBTI or UBIT, which off set some potential upsides.
But my perspective on what to do with my IRA has changed.....
I was wondering if anyone knows about using a Roth IRA withdrawal for a First Time Homebuyer offsetting penalties, but if this would work for purchasing an owner financed deal?
I am trying to get my credit cleaned up, but have a little ways to go there, but I have a little over $9K in my IRA. Of that I have $6K of that as my own contributions, the rest is earnings, but I started it back in 2004, and have not contributed much in the last few years. I am thinking a decent portion of my earnings probably are over 5 years old (which seems to make a difference in avoiding the 10% early withdrawal penalty, as far as I understand it.)
I have an idea of getting a place that I currently rent purchased through owner financing, it would be fairly feasible considering the ownership and my professional relationship with them, managing other properties of theirs and seeing them sell off other properties to their tenants (not w/ owner financing, but pretty sure they would be open to it). To do an owner financing deal I think I would need to put down about 5%, so maybe $6K - $6.5K or so, as I would be looking to offer around $120K - $130K purchase price, which is reasonable for this property. The property is funky old place, it is not the best, but fine for now, I would need to start planning for some potential pricier repairs in next 5 years or so with some of the major parts of the house (foundation, electrical is surely outdated, would want to someday install better HVAC instead of the boiler and no A/C setup it has, possible plumbing issues, roof will need attention w/in 5-10 years, etc). It would be a decent flip, but it really makes sense to keep it as my residence for a while, then as a rental. It would make an excellent rental, is very close to a couple of university campuses, is very close to the Denver Convention Center, and in general to downtown Denver. Seems like it will continue to appreciate well just for location, land value, and proximity to downtown. Houses in the area, especially a block or so away have some great comps, and lots of development/improvement going on within the vicinity with other houses, and other places getting redeveloped into modern townhouse/etc.
With my credit in bad shape and needing at least 2-3 years to clear it up to a decent clean slate, really no savings at this time, and that $9K+ sitting in my IRA I am thinking I really would like to pursue this opportunity. I would think that it (First Time Homebuyer program to avoid any penalties on pulling Roth IRA funds for a home purchase) would work just as well with an owner financed deal as it would with a conventional loan, but wanted to see if anyone can advise on this? Want to make sure, and see how to go about planning for and going about doing that. I figured that going through this process with a loan originating service with the owner, would make it easier to prove for my First Time Homebuyer cash out option with my IRA, and to avoid as many penalty fees as possible. Just not sure how this all works.....
My plan would be to pull that money from my Roth (need to find out the logistics of this, any help appreciated), put it down for my 5% down payment, and then work on clearing up my credit as fast as I can (hopefully a year, but 2-3 is more realistic) and then would be able to re-finance out of the owner financing and into a more conventional 30 year mortgage. Would probably live here for 2-3 years or so, then turn it into a rental.
Guessing I should probably consult a professional, maybe a CPA, tax attorney, IRA specialist, not even 100% sure who to go to for advice on this, hoping you all can help. Any advice would be greatly appreciated, even speculatory info/ideas as long as your are being honest about how certain you are on your information.
@Nick Reaves I don't want to rain on your parade but why would the owners carry the loan when you would not qualify for a conventional loan?
I can't speak to the whole Roth question but I would say this, with no savings and buying a house that needs works and has issues is a really bad idea. Add on that your history of poor money management and you have a recipe for a repeat performance of wrecking your credit.
Get some professional help with money management and clean up your credit and get some savings. If you can turn it around for 2 years and have savings then you can talk about something like this.
If you do nothing else, save some money in a rainy day fund and live below your means.
It's a bummer but what you are suggesting is really headed for more of the same.
@Bill S. I completely understand, I am working on rebuilding it. Nearly all of my bad credit is related to medical bills I have been unable to pay. I had a 725 credit score just two years ago, which has dropped a good bit due to multiple medical bill issues, most of which are in collections, one I have a judgement from. So I am dealing with all of that, thinking by 12 months I should be able to have most of that cleared up, but budgeting for more time in case it takes a bit longer. My current lack of savings mainly has to do with me finally working on paying these things down.
As to why would they be willing to do a owner financed deal with my poor credit? I do have an excellent rental history, always pay on the 1st or sooner, never any late issues, plus steady employment. Plus the down payment from me would offer them a decent chunk of cash now, and they could cash in quite a bit again, once I can refinance and I can buy out the loan 2-3 years later or so. If I default (which would not happen) they could foreclose on me, and have my down payment to cover some of those costs and float them along. Also owners are investors and have tons of deals going all of the time, I'm sure they would be happy to use my down payment funds for their other more pertinent projects.
As to the systems that may need attention, they are all fine for a while, will probably need work in 5-10 years, so I am not really too concerned there.
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