I am in the process of purchasing a duplex with my Self-Directed IRA. It is a cash purchase so I am wondering if it's possible to do delayed financing after the close and pull my money back out (but still in my SDIRA) and put it toward the purchase of another property held in my SDIRA.
Has anyone ever done this before?
Thanks in advance!
Yes you can do a refinance as long as it is non recourse. the next property you buy with the money is the property with the potential UBIT/UDFI tax return.
you can do a cash-our refinance of a property you buy in your SD IRA. The loan must be non-recourse. Here is a list of lenders offering such financing:
Also keep in mind that most lenders will only use purchase price as the value of the property (not the current value of the property) so if you working on a fixer-upper and are hoping to use after fix-up value for the loan it probably will not work. Reach out to each lender on the list above to learn about the details of their offerings. In addition to large non-recourse lenders you can get such loan from a private lender with more lenient terms but be prepared to pay a premium.
@Victoria Dransoff we have done this twice, once with a traditional non-recourse lender (on @Dmitriy Fomichenko 's list, NASB) and once with a Private Lender. It worked fine both times. I would suggest calling some of the lenders in the list and seeing if there are any nuances to be aware of while going through this process though.
@Carl Fischer after the refi can I move the SDIRA into a solo 401k and avoid the taxes you mentioned on a future RE purchase?
Possibly- do you have a business? Employees? Pay self employment tax?
Are you sure you will have to pay the UBIT/IDFI tax? And if so how much will it be? Are you buying government housing?
Too many variables at this time to give accurate answers. We have many clients in the malvern area that can help tell you how they worked their loans.
Thank you @Carl Fischer I will need to read up a bit more on the tax stuff.
I do have other properties held in LLCs so if I were to go the solo 401k route it is already established.
Are any of the folks you mentioned who have done these types of transactions members in BP?
One other question: if I do the delayed financing can I establish another Ira funded with the "cash out? That way only one property in each.
Yes you can have as many IRAs as you want. Many clients do use seperate IRA for each property.
I cannot provide the names of clients due to privacy policies but many clients are on BP forums.
There are many events in your area. PM me and see if we can tell you about some of them.
Yes the IRA and the real estate holding can be transferred to a solo 401k plan. The real estate holding can be transferred in-kind to the solo 401k. To learn about the self-employment rules, see the following.
At First Western Federal Savings Bank we do "Cash-Out" refinances frequently for investors with SDIRA's or Solo 401K Trusts. Very straightforward process. Many investors use this method because often paying cash for a property gets the deal done, or in the interest of a short closing cash if often the only way to meet the closing deadline. The cost is the same to the investor as a "purchase money" loan, and often easier because there is now a rental history on the property.
What are the qualifications that must be met-income, etc.?
For a non-recourse loan made to an IRA or 401k, the loan is based primarily on the value of the property. It is a prohibited transaction for you to personally guarantee the loan, so underwriting guidelines tend not to be based on your income, credit, or assets.
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