Home : Need more down? A Self-Directed IRA can help!

Need more down? A Self-Directed IRA can help!

Posted by Brett Carman on 11/12/2008 at 9:27 AM
Posted in Investments

The lending landscape is an ever-evolving one. While banks try to figure out what risks they are willing to accept, there seems to be a need for people to get access to more cash for down payments. Historically, people were selling stocks, bonds, borrowing against the equity in their homes, or as many of you know, investing with NO MONEY DOWN.

In the new economy, one way to get access to cash is by tapping your retirement account. With the stock market’s volatility and no real rhyme or reason why companies’ values are in the dumps, it makes sense in many cases to at least diversify your portfolio and invest some portion in real estate. Having a larger down payment can significantly lower your interest rate when obtaining a mortgage as well.

The type of IRA needed to invest in alternative investments such as real estate, notes, deeds, private stocks, etc is known as a “self-directed IRA”. Like any other IRA, a custodian is needed to hold the account on your behalf. Once you have successfully “rolled over” a portion of your IRA into an account such as this, you are able to buy, renovate, sell or fund any aspect of the real estate process. The only catch is that any income or loss becomes the property of the IRA and as such will be off limits to you personally without incurring a penalty for early withdrawal.

Any search engine on the Net can produce a list of viable custodian options and you can shop them to find the best available fee basis and location. Their input is minimal so trust your local Realtor™ to help advise you on which properties to purchase.

If you would like to learn more about the process post your question on the blog.

Here are a few links related to Self-Directed IRA’s and Custodians:
http://www.trustetc.com
http://www.selfdirectedira.org
http://www.thinkglink.com/Self_Directed_IRA_Accounts_and_Real_Estate_Investment.htm

Related Training:

Creative Financing
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Real Estate Coaching
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Brett Carman is a seasoned veteran in the real estate industry for over 17 years. He holds active licenses in real estate, mortgage finance, and property & casualty insurance. Offering a one-stop shop for his residential and commercial clients, he strives to not only educate, but streamline the real estate acquisition process. With a long and proven track record of success, he is uniquely qualified and has a passion for helping people achieve their goals in real estate.

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12 Comments

Posted by member1891640 on 11/13/2008 7:56 PM

Brett,

Great Blog! In addition, there is a new FREE business directory website Iravestor.org http://www.iravestor.org that lets you search companies by category or location which are involved in self directed IRA's. Also, If your "in the business" you can create a free listing so investors can find you.

Thanks again,

Chris

Posted by member1892740 on 11/17/2008 10:00 AM

THIS IS AN OUTSTANDING WAY TO MAKE MONEY AND PUT IT IN YOUR IRA TAX FREE!!
I HAVE DONE MANY DEALS USING MY IRA AND HAVE HELPED MANY FRIENDS AND FAMILY LEARN HOW TO DO IT.
I WOULD BE WILLING TO YOU TOO!!

Posted by Luis Pereira - DYN outsourcing Costa Rica on 11/18/2008 7:07 PM

We at http://www.dyncr.com are always looking for new options to invest, and find new ways for our clients to get profits. We are sure that here in Costa Rica are may option to invest, particularly in Real Estate Market, i wonder if this structure can be use to buy or invest out of US.

Posted by member1893552 on 11/18/2008 8:32 PM

The information in this article is incomplete and makes it sound as if you can use your IRA money for a down payment, then get a conventional loan. This is NOT the case. To use IRA money for real estate, the only option for leverage is a non-recourse loan. This type of loan has much more stringent requirements than a conventional loan. The only other option is to purchase the Real Estate for cash with no leverage/loan.

Posted by member1894219 on 11/20/2008 2:03 PM

The person with the last comment is correct. It's important to understand the rules and regulations regarding self-directed IRAs and investments, and it's important to do your homework first. Otherwise, you'll be dealing with the IRS.

The Entrust Group is a self-directed IRA administrator that's been in business for over 25 years. If you're looking for more education on self-directed investing, checkout the Entrust Learning Center, located on our web site. We give it away for free. The address is www.TheEntrustGroup.com. The CEO and Owner, Hugh Bromma, is a pioneer in the industry and is frequently interviewed by Marke****ch, Bloomberg and other members of the financial media. Hugh's philosophy is that education is the key to a successful self-directed investor.

There are other reputable firms in the area of self-direction that were not mentioned above, such as ours and Pensco Trust. Word to the wise - do your homework and research self-directed IRA firms. Also, do your homework on your investment choice. Since it's self-directed, meaning that YOU choose your investment, if YOU lose money, the only person that you have to blame is yourself.

Check out the firm that you believe will help you the most and go with them.

Posted by Jeffrey Smith on 11/21/2008 1:09 PM

You cannot "self-deal" with your own SD-IRA for down payment money. However, you can borrow someone else's (some family members are off-limts) SD-IRA for your down payment. We've received good information from The Entrust Group about this.

A friend of mine allows me to borrow his IRA funds for real estate investing. He will also allow his IRA to be my equity partner (I get a piece of the deal with none of my cash invested and no liability).

SD-IRA can borrow mortgage money non-recourse, which means the property itself is the sole recourse for security on the debt. Non-recourse loans are typically made on commercial properties, rather than small residential properties. You can pool together multiple SD-IRA to build the required down payment (use a good real estate attorney to draft the entity papers and operating agreement) to buy a cash flowing commercial property.

You can even structure the deal to give the SD-IRA partners full ownership for appreciation and you get the net cash flow without ownership. win-win.

Posted by member1898652 on 12/07/2008 1:29 AM

Brett,

Great post and it is a great time to start this dialogue online. Most people don't really realize that there is a world outside of Wall Street. Also, agree with Jeffrey that you cannot give yourself a cash injection for you own personal property out of your self directed IRA. You cannot personally benefit from you own IRA retirement account in a real estate transaction. However, you can lend on someone else's property with your retirement account and they can lend more on yours so long as they are not a prohibitive party.

Now, depending on one's investment objectives, might be a good time to lend an IRA account secured by real estate. Check with a <a href="http://www.youtube.com/watch?v=7PlPhDnsbMA>self directed IRA</a> custodian as to the do's and don'ts. An IRA custodian can help you stay clear of some of the prohibitive IRA transactions as there are a number of pitfalls if you to go it alone.

Posted by member1906851 on 01/26/2009 11:58 AM

Hi Brett,

Got the info I needed. F.Y.I. the link you provided (www.thinkglink.com/self_directed_IRA.......) is very anti real estate and seems to be more into relying on the stock market to make your money. I disagree and trust real estate whole heartedly. Maybe this link should be removed? It seems like it was written before the Wall Street tanked :)

Thanks for the info,

Sylvie

Posted by member1914534 on 01/28/2009 4:58 PM

Great article! You may also want to check this article about Self Directed IRA.
http://dougmitchell123.wordpress.com/2008/12/23/self-directed-ira-vs-...

Posted by member1918130 on 02/04/2009 12:40 PM

Working with real estate professionals day in day out, it always amazes me how many people don't know about the ability to purchase real estate with your IRA. Self-directed and real estate IRAs are powerful tools and one of the driving forces behind the ones found at http://www.investorloft.com . Working to educate both investors and professionals on this investment flexibility, we look forward to seeing more investors and financial/real estate professionals alike take advantage of this investment vehicle.

Posted by MyRealEstateIRA on 04/17/2009 8:23 AM

hi,

Great Article! Find a self-directed advisory group that is completely staffed those that have contracted attorneys and tax accountants lack stability. Find one that actually has a staff and not just a person who is clever enough to put together a package with a low price. Find one that can demonstrate commitment to the product and has an IRS interaction history. Don’t need them to learn at your expense.

Daniel Cordoba is a Certified Estate Advisor and Principal of Asset Exchange Group, LLC. Asset Exchange Strategies, LLC through its website http://www.MyRealEstateIRA.com helps investors gain greater control of their self-directed IRAs.

Posted by member1992388 on 07/05/2009 12:33 AM

Education is the key to being a successful self directed investor. You need to consider all the angles before putting your hard earned money into any investment whether it be real estate, stocks, bonds, or precious metals. Visit http://www.selfdirectedinvestor.com/ to learn more about how markets work and what sectors make sense in these uncertain times.

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