Should I use my IRA or Heloc for my first deal?

Question

I have about an equal amount of cash I can get from the equity in my home and my IRA.  I live in  Minnesota.  Which should I start with and why?  My goal is duplex, triplex, fourplex to generate good cashflow as I rinse and repeat the process.

Love to do the follow the BRRRR strategy.  I know I cannot use the Ira money and mix my own money but if I can start with the IRA money then re-finance out my ira money after I fixed up the property I would be very happy.

Love to hear your thoughts and questions.

Thank you.

Mike B. · Answer

@Jeremy Karja - depends on if there's any penalties from taking a loan out on your IRA (if I'm reading your post correctly).  If you have a HELOC already with access to decent cash, would use the HELOC.. low interest rate and can pay it back and use it again hassle free.  Now I will say I did recently use a personal loan from my 403B, however the terms were great (4.5% interest paid back to me, total payback due in 6 years).  Unsure what others have run into (term wise with their retirement account) but I combined that with my HELOC to purchase a home cash, rehab and rent it out.  Waiting the 6 months now (almost there) to cash out refi and pay everything back.

Carl Fischer · Answer

@Jeremy Karja

Jeremy, you could certainly use a self-directed IRA to fund this deal. It may seem complicated reading about it, but the process is relatively simple. First you open a SDIRA, Then you transfer money into it, then make your purchase in the name of the IRA. All income or expenses go to or come out of the account.

Our company has may clients who have found that purchasing real estate in the SDIRA can really help the grow their retirement funds in an environment where they can call the shots. If you have any questions please do not hesitate to connect with me. I would be happy to answer any questions you have.

Thank you

Carl

Carson Wilcox · Answer

I optred for heloc.  More $ for me... easier access, almost no restrictions... low tax deductible interest...just be careful. its your house.

Carl Fischer · Answer

@Jeremy Karja

The vesting on the deed would read IRA undivided interest 50% and your name personally undivided 50% or whatever % equates to the two entities.  All expenses and income is split based on the percentages.  When a bill is paid 2 checks could be cut based on ownership percentage same with income.  You would treat it as "tenants in common". You can also have a property manager that pays bills and splits profits again based on ownership percentages.

Both entities should be able to do the purchase so it is prudent to make sure there is viable way for each entity is able to do the deal without the other. Example if the IRA puts in 30 % and could get a non recourse loan then it could do the deal on its own. If the IRS asks it is important to show you or your IRA did not get a benefit from the other. I hope this helps.

Thank you

Carl

Jeremy Karja · Answer

@Carl Fischer - Can't thank you enough.  That clarifies things for completely... at least at this juncture.

Thank you and I hope others see your post who have the same question.

Best of luck,

Jeremy

Jeremy Karja · Answer

@Carl Fischer - Carl,  Thank you very much.  My question would be could I use a portion of IRA and HELOC to purchase a property?  How do make sure the funds aren't co-mingled when buy something?  That was the part I was not clear on how to keep the funds seperated when you are using IRA and NON-IRA funds together to purchase a property, fix it up, etc?

Jeremy Karja · Answer

Thanks everyone.

@Mike B. I don't think I can take a loan from my IRA but I know you can from a 403B (I work with them for my day job) so this would be actually using the IRA funds which means it may be difficult to put them together.

I have not officially started my HELOC so I would need to do that as well.  But sounds like that is the much easier one to use.  Maybe use one for one property and the other for the other property is my thought.  I work with retirment accounts and know that a 70k 401k is not going to get me far in retirment so I dont mind using it.  I am just tradiing stocks with it now and losing more than gaining so it will be a good trade off.

Sam Shueh · Answer

Heloc. Safe keep your IRA for later days.

Account Closed · Answer

Yes.

Should I use my IRA or Heloc for my first deal?

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