Cashout Refi when using SD-IRA

7 Replies

Hi all, considering opening a SD-IRA with an old 401k account.

We'd like to use the SD-IRA funds for the down-payment to purchase a multifamily apartment building.

Come someone chime in on whether or not we will be allowed to execute a cashout refinance in the future in order to extract our initial investment funds, pay back the SD-IRA and then repeat the strategy?

@Tom M.

The way I understand what you are saying, probably not.

You do not use IRA funds on a purchase of a property that you own. The IRA owns the property. So, the IRA is on title and the IRA is the borrower on the loan.

Any loan to the IRA must be non-recourse, meaning no personal guarantee from you. Most non-recourse lenders want 30-40% down for 1-4 unit. Sometimes the requirement for down payment can be less on larger commercial deals.

You may not personally refinance or pay off the IRA.

In the future, once the IRA has built equity via appreciation of the property and paydown of the loan balance, there may be the opportunity for the IRA to refinance and pull some of that equity out to create more liquidity for the IRA.

Tom, welcome to BiggerPockets and congratulations on your first forum post!

As Brian explained if you finance a property in your SD-IRA you must use non-recourse financing. There are several lenders specializing in such, here is a list that you may find helpful:

You can do cash-out refi, but you would have to wait several years before you could do that, most lenders will not use appraised value until 3 years after the purchase, they will use purchase price as the value. Check with lenders directly for details on the programs they offer. Also the property must appreciate significantly in order for you to pull out your down-payment since most of these loans don't go higher than 60-65% LTV.

This wasn't mentioned but if you plan to pull money out to invest personally outside of your IRA that is also a big no, no. Any amounts would be taxable distributions and likely subject to penalty.

You can use your IRA for investing but the funds have to remain retirement funds and the normal strategies of growing the investments are limited a bit as explained above.

You haven't asked this yet but I feel you may - you can't borrow from your IRA and generally, you can't invest with your IRA for the purchase of an investment property.

@Tom M.

If the property is owned by the self-directed IRA, the self-directed IRA can later get a non-recourse loan for investing in additional real-estate. However, unrelated debt-financed income tax (UDFI) would apply.

Thank you all very much for your very rapid responses!

@Tom M.

Tom I do what you are talking about. My Ira buys the property, the Ira secures a non recourse loan and the tenants rent pays the PITI and provides some cash flow to my IRA. I am in Ambler if you ever want to get together. I will be attending the mid Atlantic Summit for Real Estate investors in Philly in April. A lot of BP community, locally and around the country, are attending as well and it's in your back yard.

I think It is a great opportunity to expand your network. If you decide to go let me know  I may be able to get some discount codes for you. 

@Carl Fischer I am getting ready to do a refi within my SDRIRA & am attending the mid atlantic summit & would be interested in connecting with you @ that venue.  Thank you in advance.

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