Mc Kinney, TX · Member since 2016 · 12 posts · 2 votes
I'm a new investor with limited money outside of my qualified retirement accounts (i.e. Traditional IRA and Roth IRA's). My strategy is wealth accumulation through buying, renovating and then renting renovated single family homes over long periods of time. I was planning on using a self-directed IRA in order to access my IRA funds for investing in my real estate strategy.
However, I'd read that I could not personally guarantee any loans on real estate that the self-directed IRA has made an investment in. Does anyone have any experience in this area that they could share? I'd expect that a traditional mortgage would require me to personally guarantee the loan, but I'm not sure. I really appreciate any advice you have! Thank you.
you are correct, as a 'disqualified person' you are prohibited from providing personal guarantee therefore conventional mortgage can not be used. You have to use non-recourse financing. There is only handful of lenders doing these types of loans but it is very possible to finance a property in your IRA.
you are correct, as a 'disqualified person' you are prohibited from providing personal guarantee therefore conventional mortgage can not be used. You have to use non-recourse financing. There is only handful of lenders doing these types of loans but it is very possible to finance a property in your IRA.
An IRA may use a mortgage, but it must be non-recourse. You may not pledge your personal assets as security for the IRA's debt per IRS rules. There are a handful of lenders that do this, including the following who operate in all 50 states.
Contact them to learn about terms, rates, down payment and reserve requirements, etc.
When an IRA uses debt-financing, the portion of the income derived from the borrowed funds is taxed as Unrelated Debt-Financed Income (UDFI). IRS publication 598 covers this topic. Generally speaking, there is a cost for using non-IRA money to grow your IRA, but net of that cost, you should still very much see the benefits of leverage and a higher cash-on-cash return for your IRA dollars.
Professional · Carlsbad, CA · Member since 2012 · 12k+ posts · 1k+ votes
10y
@Jesse Weaver
If you want to be able to personally guarantee loans for real estate purchases made indirectly using retirement funds then you will need to explore the ROBS 401(k) plan. Of course, a whole set of other rules will come into play but the ROBS 401k will afford you the option to use your retirement funds to finance a real estate operating company.
You will also be able to do work on the properties and receive a fair compensation because you are required to be an employee of the business that is funded with 401(k) funds.