Often the largest obstacle to the success of a Self-directed IRA is the fact the IRA must stand on it’s own. The IRA’s investments cannot benefit the IRA owner nor can the IRA benefit from the IRA owner; the investments are strictly for the future. Crossing the line constitutes self-dealing and can jeopardize your entire IRA!
We often receive calls from prospective investors who have come to realize they can use their IRA to acquire the cottage at the beach, the house on the golf course or the office building to work in… These investments may be possible though not under the terms the IRA owner finds desirable.
Consider the cottage at the beach, the IRA can make the purchase and hold the property for investment. The IRA owner cannot use the property although after taking a distribution of the property he or she could move into it in the future. Therefore, it is possible to acquire a property to someday retire into, though again there cannot be any personal benefit until the distribution has been made.
Using your IRA to purchase a building to run your personal business out of is a common subject. The IRA can definitely purchase an office building though the IRA’s owner could not be the sole tenant. There are exceptions to the rule through creative structure or minority occupancy-call IRA Advantage for details.
The property should be professionally managed and hired licensed, bonded professionals should do all work. If you are the hands on owner who likes to buy property to personally improve, ownership outside of your IRA may be more suitable.
Any loan on the IRA owned property must be a non-recourse loan. The property must be able to stand on it’s own, you the IRA owner cannot secure a loan based upon your personal income, assets and credit. There are banks that specialize in non-recourse IRA loans and the terms are very competitive. Loan to value ratios typically cap out at about 60% loan to value. Another source of finance for IRA owned properties is the seller… In today’s world financing your IRA investments could prove easier than finding a loan personally!
Always remember the property is not yours, it is your IRA’s.
