Qualifying for a loan to my self-directed IRA

[Stanley E.]

Hi BP. I own a SFR through my self-directed retirement account that rents for $600/mnth. I want to pre-qualify for a loan to my self-directed retirement account to get ready and purchase my next SFR. What would be the best type type of loan to apply for? What would be the best type of institution to apply for the loan with? What might be some pitfalls? Thanks. MODERATOR: THIS IS NOT A REQUEST FOR LENDERS. SUCH REQUESTS ARE ALLOWED ONLY IN THE MARKETPLACE. Stanley E.

[Brian Eastman]

@Stanley E.

If the IRA is the borrower, then the loan must be non-recourse - meaning no personal guarantee from you.

Such loans are only available from a handful of institutions.  Some local/regional banks may loan on this basis as well.

The use of debt financing in an IRA incurs a tax knows as UDFI. Seek out a CPA who can assist you with this. The tax is applied on the percentage of income that is derived from non-IRA capital, and typically does not add up to much on rental income. If you sell a property and still have outstanding debt, the UDFI bite there can be a bit more, but you should still come out very much ahead through the use of leverage and obtain a higher cash-on-cash return than with an all-cash transaction.