Non-Recourse IRA Loans

[Michael Herr]

looking to purchase long term buy and hold in self directed IRA (roth).

Asking: 30k

Purchase:20k

10k in rehab, ARV 50k. Rents for $800/month.

I don't t have an offer, because I'm not yet setup, but i know the area and can find these deals.

My question is my Roth IRA currently has around 23k. I was hoping to save this year's and next years contributions, and other things I could roll over to cover anything unexpected, and stay a bit diversified.

I would need non-recourse loan of around 10k. I would prefer that to partnering with myself or someone else. I make the max contributions annually , and would like to build equity in the Roth.

Are any banks doing loans like this?

Yes I have/will call around, but most places don't know what I'm talking about: curious to hear the experience of real people.

I am putting the feelers out for private money. I have brothers, sister, grandma and parents eager to loan on this, but its my understanding that those people are prohibited from loaning.

[Phil G.]

I think you would owe UDFI, as it's still indebtedness for the renovation of the property. UDFI would be based on the percentage of net income due to indebtedness. Basically, average indebtedness divided by property basis. The calculation is slightly more complicated on form 990T.

Based on the numbers above, the amount of tax would be pretty small and wouldn't stop me from doing the deal. If you begin earning on the property in 2014 and pay off the contractor in 2014, you'd only have to consider UDFI for the one year.