Can I use a Self Directed IRA for a down payment on a VRBO?

4 Replies

Can I use my self directed IRA funds as a down payment on a vacation rental investment property? If so, can I then use a traditional mortgage for the remainder of the purchase? Also, am I allowed to use the property at all for personal use when not rented (like 40-60 days/yr)?

@Brian Coffman

If your IRA is involved in the transaction, then it is an IRA owned property.

The IRA must obtain a non-recourse loan. You may not place a personal guarantee on the loan as this would violate IRS rules.

You may never use the property personally. The property is purely an investment asset of the IRA.

One invests their IRA in a vacation rental because that vacation rental provides the best possibility of return on investment to the IRA, not so they can use it.

@Brian Coffman

Welcome to BiggerPockets and congrats on your first forum post!

If you wish to buy property personally - you would not be able to use your IRA in the connection with this purchase.

If you wish to buy the property in your self-directed IRA - yes you can use funds from your IRA for a down-payment and finance the purchase. Since as disqualified person you are not allowed to provide a personal guarantee for a loan to your IRA you may not use conventional loan, you must utilize non-recourse loan (meaning the lender has no recourse against you personally, property is the only security for the loan). There are handful of lenders specializing in this type of loans, here is a list of lenders I've put together that you may find helpful:

https://www.biggerpockets.com/blogs/2810/50272-lis...

You are absolutely prohibited from personally using property that your IRA owns. This would constitute a prohibited transaction and will disqualify your IRA. 

@Brian Coffman

IRA owners must make sure they do not engage in prohibited transactions when investing their IRA assets in real estate.

You cannot use your IRA in a self-serving manner. While the definition of what constitutes a disqualified person is detailed and complex ( See IRC Sec.4975(e0(2)), the IRA participant will always be considered a disqualified person with respect to investing the IRA in real estate for personal use (whether for partial or full use).

The proposed transaction would specifically violate the following prohibited transaction rule. 

transfer to, or use by or for the benefit of, a disqualified person of the income or assets of an IRA;

https://www.irs.gov/retirement-plans/plan-particip...