Investment home purchased and held inside IRA, HOW?

Question

I have a roth and a traditional IRA, combo of 100K w/ 15k of it in cash.  In section 103 of the GRI (Graduate of Real Estate Institute), I'm almost 100% positive I read that you can purchase an investment home and hold it inside of your ROTH.  I'm now unable to access that material, it was an online class, and I can't seem to find any information on how that process works and what the requirements are.  If anyone has info, please share.  If not it will take me nearly 3 more years to save for my first deposit for an investment property.  TIA

Shannon Wood · Answer

Thank you Dmitrity, I will certainly educate my on this topic.  So much to learn, so little time.

Dmitriy Fomichenko · Answer

@Shannon Wood

it is possible to buy an investment property inside of your IRA. In order to do so you need to establish self-directed IRA, transfer your existing IRA, then you can buy a property inside of this new SD IRA. Keep in mind that the IRA would own the property, not you personally. Therefore all income from the property belongs to the IRA (you personally can't touch it).

When buying investment property inside of an IRA you can use leverage, however, because you are considered disqualified person to your IRA - you are not allowed to provide personal guarantee therefore can't use conventional financing, the loan must be non-recourse. Here is a list of lenders offering such loans to retirement accounts:https://www.biggerpockets.com/member-blogs/2810/50272-list-of-non-recourse-lenders-for-self-directged-ira-and-401kIt is crucial that you understand IRS rules about prohibited transactions, you can't provide any services to your retirement plan and can't benefit from it any any way, directly or indirectly. Learn more here:https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-prohibited-transactionsHope this helps!

Jon Schoeller · Answer

I believe this is possible through a 3rd party custodian but I don't think you are allowed to invest in it yourself with a traditional IRA. If you have a self directed IRA this is possible. It's been a while since I read up on it so I will let someone with more knowledge fill in more details. Good luck!