I've been representing a buyer that is using their IRA to purchase an investment home. At first I thought, "How exciting! - tell me more!" and I have been learning more every step of the way.
First of all you have to set up your IRA as an entity with a company that manages "Self-Directed IRA's". There is a company called 
here in Colorado that helps you through everything. They are like the mutual fund company that currently holds your IRA. They report to you and to the IRS about your funds and make sure you stay within the government's guidlines of self-direction.
If your IRA is not big enough, you can get other people's IRAs and combine them into one entity/partnership. You will then own a percentage of this entity. In other words, if you put up $50k and someone else puts up another $50k, you both own 50% of the value and 50% of the costs associated with it. Setting up the entity take about 2 weeks for you to move the funds over and fill out the appropriate documentation, so I suggest you have this fully in place before finding the perfect home.
Next is getting a loan. If the IRA is not large enough to purchase an investment property, your IRA will need to get a loan. Remember this is not about you - it's about your IRA. The loan it needs to get is called a "Non-Recourse" loan. In other words, the lender has no recourse to the owner of the IRA if loan should go into default. These are hard to come by and hard to get, but all possible. This process is done in conjunction with the IRA establishment, but should take the better part of a week. You will need to provide information for the loan officer.
OK, so you have a company that holds the IRA....a lender that will give you money..... now you need to find the perfect house - AND win the bid. In this market it is difficult for anyone to win the bid that is not a cash buyer. Add in the fact the sellers have to accept and jump through some more loops (that I'll describe later) winning a bid is difficult. I have been creative enough to get my buyer under contract.
To win the bid, I created a contract with my Buyer's name on the contract and written in the Additional Provisions box is that it will be purchased with IRA funds and the buyer's name will change. I then also created a Promissory Note for the Escrow. This is done because the buyer cannot put any money toward the purchase of the home (Only the IRA). The buyer also cannot buy the investment property for themselves, a spouse or any a family member. After we are under contract, a new contract is created with the appropriate name. All parties must sign including the owner of the IRA, but that person only signs as Read and Accepted (RNA). All the contracts are sent to New Direction who reviews the contracts and signs on behalf of the IRA.
The rest of the process goes the same - inspections and appraisals happen. Any costs will have to either come out at closing, or have a 3rd party pay (not the IRA holder) and get reimbursed. Any new or amendment contracts are signed the same way.
Then the closing comes. The lender will create lending documents that the buyer will sign "RNA" and then forward them to New Direction IRA for their signature. The Title company then prepares the closing documents and the signature process is repeated.
You are now landlord of your IRA-funded property. All rents go to New Direction IRA, who also makes the mortgage payment. Any improvements or repairs can be made by you or anyone. Reimbursement is then requested from New Direction.
Wha-lah! Not rocket science, but still a little tricky. If I may help you purchase an investment property in the Denver Metro area, please contact me.
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