Purchasing SFR using funds from IRA, owner financed

1 Reply


I've been looking for creative methods to utilize the funds in my Self directed IRA to purchase Real Estate. I don't have enough to purchase the type of SFR I want, and I am wondering if I would be able to use the funds from my IRA as a down payment for a owner financed deal?

Scenario: Seller of SFR (not related to me in any way) owner finances me her house at X% interest rate for X amount of years.

I will have a property manager that handles all operations/financials and my self directed IRA will receive all income and pay all expenses. I don't touch any of the money, ever. (Well, maybe when I retire... Lol)

Any potential issues? Is this consider off normal practice or a standard transaction with SDIRA? 

Thanks in advance for your input!

-Arun Chandra

@Arun Chandra

The strategy sounds absolutely fine.  Two considerations:

1) The owner carry note must be non-recourse - meaning no personal guarantee from you. This is pretty standard with owner carry contracts anyway.

2) The use of debt-financing will expose your IRA to taxation known as UDFI. Don't panic. The actual tax cost on rental income will not be that bad and you will still very much receive the benefit of using leverage. You just want to be sure you understand this concept and have a CPA you are working with you to help with the required 990-T retirn. See IRS Publication 598 for more details.

Good luck with the deal!

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