Investor · HAWTHORNE, CA · Member since 2013 · 82 posts · 32 votes
I have a opportunity to purchase a SFH investment in my neighborhood. I want to use my self directed IRA to fund the down payment and close the deal with a conventional 30 year fixed loan. The catch is funding the deal getting the loan then returning the money back to the IRA account prior to the 60 day transfer period.
Anyone thought of this or use this technique?
Thank you,
Loren
Full-Time Investor · Charlotte, NC · Member since 2009 · 2k+ posts · 1k+ votes
13y
Loren, you can use your SDIRA to leverage a loan inside your IRA. The loan must be nonrecourse, so it's not easy to find a lender. Then, you must also pay UDFI tax since you're leveraging your IRA. Another option is to convert to Self Directed 401k. You don't pay UDFI with a SD401k. You could also just borrow the money from your SD 401k if you do convert. You can borrow 50% of your money from your 401k (up to 50k), and pay it back over 5 years with no penalty. Disclaimer..I really don't know what i'm talking about :)
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
13y
You're not really funding the down payment with the IRA. You're taking a withdrawal and then returning it under the 60 day rule. How are you going to get the money in 60 days if you don't have it now? If its not back in 60 days, its a withdrawal with taxes and penalties. Conventional lenders typically want to see two bank statements at the start of the process and may (probably will) question the sudden appearance of a big wad of cash.
Austin, TX · Member since 2013 · 47 posts · 12 votes
13y
Hi Loren,
I have not used that technique. I did however partner with my SD IRA so I own a percent of the home and it owns a percentage as well. It of course is not a home I live in because that would be against the rules. If you don't mind me asking...why do you need to return the money back to the IRA prior to the 60 day transfer period when both the IRA and you could have ownership?
Investor · HAWTHORNE, CA · Member since 2013 · 82 posts · 32 votes
13y
Hi Ashlie,
I understand you did an 100 % outright purchase without a conventional loan using self directed IRA.
I am looking to use the money as a down payment to get into a conventional 30 year fixed loan. IRS states you have 60 days to transfer money without it being a distribution.
Investor · HAWTHORNE, CA · Member since 2013 · 82 posts · 32 votes
13y
Hi Jon,
Thanks for the words of advice.
I already showed the funds as part of the pre-approval process. The bank is OK with using the IRA money for down payment they did make mention of the potential tax penalties. I have other private lenders that will fund me to return to monies to the IRA.
I would have to season the money from the private lender prior to the transaction which would be costly.
Thanks again,
Loren
Full-Time Investor · Charlotte, NC · Member since 2009 · 2k+ posts · 1k+ votes
13y
Loren, you can use your SDIRA to leverage a loan inside your IRA. The loan must be nonrecourse, so it's not easy to find a lender. Then, you must also pay UDFI tax since you're leveraging your IRA. Another option is to convert to Self Directed 401k. You don't pay UDFI with a SD401k. You could also just borrow the money from your SD 401k if you do convert. You can borrow 50% of your money from your 401k (up to 50k), and pay it back over 5 years with no penalty. Disclaimer..I really don't know what i'm talking about :)
Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
13y
Loren Becker,
As long as YOU GET the money back into it by then you are fine. I would put it into a new account to show a rollover. Then I would roll it over back to the other account just to show it as a rollover.
Rental Property Investor · Reedsburg, WI · Member since 2011 · 1k+ posts · 857 votes
13y
As a twist on this, I have been wondering (and will be talking to my IRA?LLC Lawyer next week to clarify) about this scenario;
I want to partner with my SDIRA on a rental property. Lets say the SDIRA would go in for 30% with 15% coming from existing SDIRA funds, and 15% from a non-recourse loan within the SDIRA. I, personally as a 'partner', would go in for the other 70%. This 70 might be a mix of cash and loan, personal guarantee, or loan made on the equity I have in other investments.
Would this work as far as the mixing of SDIRA and 'personal funds'? I do realize that all expenses and income would need to be split in the same 30-70 ratio.
The issue comes from the more than likely recourse loan from outside the IRA and the personal guarantee on the property. That is not a good route to go down.
Rental Property Investor · Reedsburg, WI · Member since 2011 · 1k+ posts · 857 votes
13y
Steven,
Just to make sure I am understanding things properly..............
You are saying that even if the 'recourse loan' would be OUTSIDE of the SDIRA side of things, that because it is on the same property as the SDIRA, it would still be a 'prohibited transaction', since it would 'indirectly' potential affect the SDIRA side also?
IF, and this is a big if, I could secure a private non-recourse loan for the NON SDIRA side of things, (I am assuming a private individual that would be willing to do this, not a commercial bank) then this idea might work? If yes, does one non-recourse loan have the 'first position' over the other, or would they each have the right to the percentage of the LLC makeup? In the case I am using 30-70 ratio?