Investor · La Porte, IN · Member since 2015 · 31 posts · 2 votes
I have a buy and hold rental property under contract. I also have a real estate IRA with Equity Trust. I'd like to use some of those funds for the earnest money as well as some of the repairs. I have a private lender for the balance. I will get a mortgage in two months when the repairs are complete and we have a tenant. The mortgage is from a portfolio lender who will finance 70% of the ARV, which is more than enough to pay back my earnest money and repairs from the IRA as well as the private lender, plus interest. Do I have to keep this property in the name of my IRA forever or can I merely take out a mortgage in the name of my LLC (when the house is fixed up with a tenant in it) and pay back the funds borrowed from the IRA? I've been told that if I keep the house that I can't get a mortgage in any other name than the IRA (on my behalf) since that would be comingling funds. Is that accurate?
Investor · La Porte, IN · Member since 2015 · 31 posts · 2 votes
10y
Well, I learned a HUGE lesson today about IRA investing. In essence, anytime you put even the smallest amount of IRA funds into your own deal, it has to be controlled by the IRA on your behalf. This is an IRS rule and there appears to be no getting around it. That's all good and well unless you want to use it for the BRRRR strategy. In my case, I was going to use some of my IRA funds for earnest money and repairs, and a private lender for the balance. Then, after two months or so, when the repairs are made and I have a tenant, I would get a 70% ARV loan from a local portfolio lender. The problem came when I found out that I can only get a "non-recourse" loan when my IRA is involved. There are only a handful of on-recourse lenders out there and the terms are such that they will only lend about 60% of WHAT I HAVE INVESTED, not the ARV!!. In other words, a significant amount of my IRA money stays tied up in every deal. After a handful of deals, all my funds would be tied up and I would be very limited in doing any other deals unless they are funded entirely by private lenders. This was a rude awakening since I envisioned using my IRA forever doing the BRRRR strategy and building a significant portfolio for retirement outside of the IRA. Now, this is in jeopardy unless I can find private lenders to fund all of every deal in perpetuity. Obviously I will have to focus on flips to generate non IRA funds so I can do deals outside of the IRA going forward. I'm happy to do deals within and outside of the IRA, but this revelation really is changing my plan. If anyone sees where I'm in error here, please let me know, but if I'm right, I would appreciate it if the Bigger Pockets community shared this information with its members because it's quite a lesson I almost learned the hard way!
Wholesaler, Rehabber and Landlord · San Antonio, TX · Member since 2014 · 2k+ posts · 2k+ votes
10y
You were really NOT going to check what the rules were with a self directed IRA?? That sounds like YOU almost made a big mistake for not checking with Uncle Sam first. If you would have asked, I am sure that someone would, and in fact @Brian Eastman DID tell you that. You have to keep you and your IRA seperate.
There are lots of ways to purchase in your sdira. Most of the different sdira companies have informational classes or their websites have videos or youtube videos of what you can and cant do.
You can leverage your funds in the IRA with a non-recourse loan, usually with about 40% down. That sure is better than 100% down. If you can find someone with a self directed ira, he/she can lend your IRA money to flip a house. The great thing is that you can do quite a few things within the rules.
Oh, by the way, there are rules to every game. IRS has some when it comes to IRAs. Make sure that YOU know them forwards and backwards when you want to play the game.
Investor · La Porte, IN · Member since 2015 · 31 posts · 2 votes
10y
I've researched previous threads on BP and remain overwhelmed with what seems to be an inconsistent level of knowledge on the subject of self directed IRA's and the rules for rehabbing/flips, buy and holds, loans, etc. Can anyone recommend a good CPA knowledgeable on this subject that I may speak to one on one? Thanks for all the help so far guys...............this is definitely a process!