IRA Investments in Real Estate Can Be Leveraged
Yes, not only is it possible to acquire IRA Investments in Real Estate with your IRA but it is possible to finance a purchase! Leveraging Real Estate is a tremendous wealth building tool. Though today lower LTVs are both the norm and of preference, a little leverage dramatically opens up the investments available & yields possible.
Non-recourse is required
Loans on IRA owned property must be non-recourse. A non-recourse loan is one in which the IRA account holder or any other disqualified party is not personally liable for repayment of the loan. The security instruments allow no recourse against the individual account holders or the balances of your IRA funds. In the event of default or foreclosure the lender can only recover the financed property and the equity in it.
What are the requirements for rental property?
Keep in mind the loan is not being issued to the account holder, it is the IRA’s loan and it cannot be attributable to the account holder in any way. Typically, the loan is no more than 70% loan to value. The financed property must generate sufficient net operating income to exceed debt service payments by 20-25% for Single Family Homes, plexes and small apartment buildings.
To apply for a loan the following is a common list of the items required:
- Completed loan application.
- Most recent asset statement verifying IRA assets for purchase and reserves.
- Purchase/sales contract.
- Acceptable real estate appraisal for the property to be financed.
- A copy of the IRA account holder’s driver’s license.
- Documentation from the IRA custodian/administrator needed for closing. If the investor is using a Checkbook IRA the LLC’s Articles of Organization, Operating Agreement, Federal tax ID number.
- Homeowner’s insurance should read the IRA or it’s LLC as the insured.
Unrelated Business Income Tax (UBIT)
If income is derived from non-IRA activity or IRA property is leveraged, then any appreciation or revenues attributed to the other activity or leverage is considered “unrelated” and a tax applies. The tax exposure on the appreciation can be eliminated or deferred by paying the loan off at least one-year preceding a sale or using a 1031 Exchange at time of sale. Solo 401(k) accounts are not subject to leverage derived UBIT.
The IRA Advantage & Equity Advantage Incorporated YouTube Channels
Can’t make our monthly Equity Advantage and IRA Advantage Continuing Education Seminars? Now catch some of the highlights available online from the comfort of your cell phone or computer!
Head to our channels and watch as owner of Equity Advantage and IRA Advantage, David Moore speaks on the basics of 1031 Exchanges and Self-Directed IRA’s in today’s market, including What Is An Exchange, What Can Be Exchanged, How Are Self-Directed IRA’s created, and more!
Subscribe to our channel for more videos!
Or call 503-635-1031
The Guys With All The Answers…
David and Thomas Moore, the co-founders of Equity Advantage & IRA Advantage
Whether working through a 1031 Exchange with Equity Advantage, acquiring real estate with an IRA through IRA Advantage or listing investment property through our Post 1031 property listing site we are here to help Investors get where they want to be. About Us…
“Go confidently forward in the pursuit of your dreams; live the life you’ve imagined”