Investing In Roth IRA

[Troy Feldman]

Hello BP community,

My mother wants to purchase restate in a local town that is starting to grow but her only cash is in her Roth IRA. We are wondering if it is possible to use that capital to invest in real estate, also can we use it as a down payment for a mortgage and have the mortgage some how be under the IRA? We are mostly worried about being penalized and taxed because the cash is before tax income. Would it be enough for me to create an LLC to invest it etc...?

Please help we need a solid strategy

Thank you all! (:

[Dmitriy Fomichenko]

@Troy Feldman

yes this is possible to invest in real estate using Roth IRA (or Traditional for that matter too). The first thing your mom needs to do is set up a self-directed Roth IRA with a custodian specializing in self-directed IRAs. Then she would rollover her existing IRA into self-directed and make the investment. The investment will be made by the IRA, not by your mom personally so the title will reflect that:

ABC Trust Company, custodian FBO Mary Smith Roth IRA, Account 12345678

or something similar to that. 

It is possible to use leverage, but the loan must be non-recourse. Conventional financing is not allowed since your mom is considered to be a disqualified person and therefore prohibited from guaranteeing the loan personally. With non-recourse the property is the only security for the loan, therefore such loans typically required larger down-payment and have slightly higher interest rates compared to conventional loans. 

There are only handful of nationwide lenders offering such loans, I've assembled the list over the years for my clients which might be helpful to you as well, you can find it here:

https://www.biggerpockets.com/blogs/2810/50272-lis...

Hope this helps.