Posted almost 4 years ago

How to Fund Real Estate with Self Directed IRA Accounts

Last week I talked about how I bought, rehabbed, & sold my first house without ever making a mortgage payment. I promised you that I’d tell you exactly where that money came from this week. I personally know many people who are earning 15% in their retirement accounts and liquid assets. I'll fill you in on that in a minute, but first I need to address this myth:

"If I Only had the Money, I’d get into Real Estate"

This is the most common barrier in people’s minds when they dream of getting into real estate investing. They believe that the hard part is finding the money. I used to think that way to, “If I only had enough money to buy a house and pay for the repairs, THEN I’d go be successful in real estate.” The truth is that the money is not the hard part.

"Finding the deal IS the hard part"

I have more than $1M at my direction at any given time at a fair interest rate (10%) and limitless millions at my direction at higher interest rates (11-15%). I don’t have enough deals to put all of that money to work. It takes marketing dollars, time & attention to negotiate deals, & dozens of offers for every deal I personally marshal to closing. The money is unlimited, while the deals are limited by many factors. 

"Back to the Money"

While some percentage of private money comes from higher net worth, liquid lenders (straight cash), the majority of private money loans throughout my circle of influence come from IRA accounts. This was the biggest epiphany I had when I just got started, because although I didn’t personally know anyone with tons of cash laying around, I did know people who had a few bucks in IRA accounts.

I actually borrowed the money FROM my lender’s IRA, not him personally. You can’t do this with any IRA account though. The type of IRA account I borrowed the money from was a Self-Directed IRA account

Self-Directed IRA Account

A self-directed IRA account is a special type of retirement account that allows you, the IRA owner to “self-direct” the asset investments inside your IRA account. A self-directed IRA can invest in many asset classes including stocks, bonds, notes(mortgages), real estate (property), gold, platinum, & more. For a complete list of allowable and disallowed investments, seek advice from a Self Directed IRA custodian.

I use Cama in Blue Bell, PA. Their website is .

Almost all IRA plans from employers are not able to self-direct and most restrict rolling over the plan if you’re still employed by that company. Most of the IRA’s of my private lenders are from previous jobs where they are no longer employed. They just contact Cama, roll over the old IRA funds, and begin lending me their IRA monies at double digit interest rates.

There is a bit of paperwork involved in every deal. Completing and mailing original docs to the custodian (Cama) and waiting for the processing & issuing of the purchase check takes a few days, but most deals can be completed in less than 14 days. It may take more time if we are waiting for the original IRA to get rolled over into a self-directed IRA.

Although there are not conventional bank qualifications for borrowing money from someone’s IRA, that person must feel confident that you, the borrower, will pay them back. The hardest deal to get funded is the first, because you have no track record. Once you have the first under your belt, you have detailed before & after pictures along with the financial records to show your next lender.

After a few years, people begin approaching YOU asking if they can fund your deals. I just got an email from a lender today. We have a closing in about 3 weeks where he is going to net more than $10,000 profit. The email basically stated that he is confident in my ability to find & negotiate deals and is willing to invest in future projects.

Private lenders are cyclical. One day they are scrambling to place $300K into deals and two weeks later they’re fully invested. My lenders usually APPROACH ME when they’re ready and tell me how much they’re looking to invest. I have 20-30 deals going on at any given time, so I can usually invest their money effectively whether they wish to invest $35,000 or $250,000.

Here’s the downside for a private lender. When your IRA money is not invested, it is sitting in a custodian’s account in the form of cash. Cash generates NO RETURN. If you want to maximize your returns, you have to keep your money invested. Preferably at 10-15% interest rates.

Are You a Private Lender? But Don't Know Where to Invest the Money?

Often there are Real Estate Investments associations in every major market where there are
ALWAYS fix & flip investors-even landlords-willing to pay 10-15% interest for that capital to build out their deals. Landlords often buy houses for cash at below market prices, complete repairs, & refinance the deals to get their cash back out of the deal. They are often paying those high interest rates for the privilege of using that cash from a private lender. (For more info on how landlord portfolios are financed, check out my previous article in Issue 1 REI'deas )

I also periodically invite accredited investors to participate in my projects. If you are interested in investing money into my projects, please email or fax a request to be added to the "Money List" to 1-888-959-3251. Use the subject line "Money List" and include your name, email, & phone number. I send out high yield opportunities as they become available to that money list.

Comments (1)

  1. This article confuses the reader and overlooks a huge source of IRA funds.  

    You did an adequate job of explaining how to tap into OTHER PEOPLE'S IRA accounts.  

    You completely ignored a huge source of funds with massive tax advantages.  THE INDIVIDUAL'S OWN IRA OR 401K.   

    Like many other real estate investors, I worked for corporate America for many years.   I had a six figure 401K balance when I left my job.   I started investing in real estate 13 years ago. I rolled over my employer  401K to a SELF DIRECTED IRA.  My custodian is Equity Trust Co, but the reader can pick their own custodian.   When I flip a house with borrowed funds, I pay FICA( 15.2%), state income tax, and federal income tax.  Easily adds up to 50% very quickly.   When I flip a house in my TRADITIONAL IRA, there is no FICA, and federal and state taxes are deferred until I start withdrawing at 70.5 years of age.    It gets even better.    

    We had several TERRIBLE YEARS late last decade in real estate.   My tax rate was basically at zero.   Over the course of 4 years, I moved the bulk of my TRADITIONAL IRA into a ROTH IRA.   We paid some tax, but it was minimal because our income was trashed because of the economy.   

    When I flip a house inside my ROTH IRA, I pay no FICA, no state, and no federal tax for life.   This is a huge advantage. and not mentioned by the writer of the article.  I own some rentals in my ROTH.   I cannot take depreciation, but when I sell, their will be no long term capital gains or depreciation recapture ( taxed at ordinary income rates).

    Buying in either a Roth or Traditional IRA is basically the same as paying cash or using a lender.   There is paperwork mandated by the IRA custodian to complete, but not that cumbersome.   

    Use investor's IRA funds all day long, but don't forget to tap into your IRA and 401 K $$ as well.   If you don't have an IRA, start one right now.  Who knows when the geniuses in DC will decide to take away the best tax savings vehicle the middle class has ever seen.