Using your IRA to buy investment real estate!

Great post Shameer! While the attorney is partially correct about using an intermediary there are other truly self-directed IRA's that do not require a third party (another hand in the piggy bank) as an intermediary. You may also know that there is only one type of loan that can be used in conjunction with the purchase of real estate investment properties using the IRA and that is a non-recourse loan available through my Novation nation wide. I'll be more than happy to share the information I have with you for your clients.

The tax attorney obviously is missing alot. Their is a 10% tax penalty for early withdraw before age 59 1/2. It must be a self directed traditional IRA, not a Roth IRA. If money is taken out it needs to be returned within 90 days, that would clasify it as a wash. He also forgot to mention the tax on earnings also. If this was calculated out the only way it would be good is to have enough to pay cash and not borrow any money. You would also be unable to recoup the time value of money lost. I nthink that anyone who recommends doing this would be subject to a law suit. They should see their financial Advisor first. A better use for a down payment would be to borrow the money from a permanent life insurance like a VUL and then pay it back monthly...the interest rate would usually be less than 3%. The IRA is also an asset that would be better used to stay out of foreclosure for a short period of time...but then replace it in less than 90days.

Hello Shameer,

     Welcome to active rain!

It's a great online community, enjoy!

Leo Namiot

Connecticut Mortgage Lender

http://www.leolends.com/

Hi Shameer,

Welcome to Active Rain! The opportunities to learn and network are incredible here. Best of luck to ya!

-Keith

Hi Chuck,

You misunderstood the post.  Shameer is right on the money.  The funds are not withdrawn from the IRA, but rather transferred to a new IRA Custodian or IRA Trustee that permits real estate related investments such as direct interests in real estate, trust deeds, mortgages, tax lien certificates, etc.  It is just like buying shares of stock in your IRA except that you are buying real estate. 

The capital gains and/or any positive (or negative) cash flow will go through the IRA.  The downside is that you do not own the real estate, your IRA does, so you can not depreciate the property on your income tax return. 

You also have to evaluate the merits of turning capital gains into ordinary income taxes because capital gains on real estate inside your IRA are taxed at ordinary income tax levels when you pull the funds out at retirement (assuming a Traditional IRA).  They are tax-free if you are using a Roth IRA.  There are positive and negatives, so you need to evaluate your options carefully.

The purchase (investment) in trust deeds, mortgages, etc., makes absolute sense in either a traditional IRA or Roth IRA because the interest income is ordinary income and the ability to defer income taxes via your IRA is an incredible wealth building tool.

Should you pull your funds out of your IRA for any reason you must rollover the proceeds within 60 days - not 90 days - in order to avoid a taxable event with potential penalties. 

Hope that helps.

William   Are you a Registered advisor also? Yes it is 60 instead of 90 days to put the money back. Roth IRA funds are always penalized 10% if taken out before age 59 1/2, unless used for medical bills to avoid bancruptcy, but a bancruptcy cannot require you to liquidate any reitirement accounts. You can  borrow against a VUL but taking out of a Roth IRA will be taxed as ordinary income and after the 60 days you can only put in $5000 per year into your Roth IRA or $6000 if you are over age 50.