Borrowing in a Self Directed IRA
Hello all. Curious if anyone can share experiences with borrowing in a Self Directed IRA with a non recourse loan? I am in CT and learning all I can about investing in a SD IRA and would love to hear if anyone could recommend a lender.
Thank you all for your time.
Most Popular Reply
Using leverage in an IRA is a more complex, but potentially more profitable way to put IRA money to work.
Depending on the type of property, there are a limited number of non-recourse lenders. The four true banks that offer such loans nationwide for 1-4 unit residential properties include:
First Western Federal Savings
North American Savings Bank
Solera National Bank
Titan Bank
Expect more conservative underwriting such as higher down payment requirements, reserve requirements and restrictions on property age, location, and condition. Speaking with lenders before really researching property deals is critical to ensure you are working within what is possible.
The use of debt-financing creates Unrelated Debt-Financed Income for an IRA, which is taxable. The tax burden is often negligible since real estate is very tax favorable and comes with many applicable deductions. The tax will definitely be much less than the added return generated from the use of leverage, so your IRA comes out ahead in terms of total ROI and cash on cash return. But... your IRA is now in need of a CPA to file a special tax return. You will certainly want to educate yourself in this area, but do not be afraid of this tax. It is simply a small cost for bringing the power of leverage into your IRA.