Partially funding a 4-plex in Oakland using SDIRA

[Sateesh Kumar]

Hello,

I am considering buying a fourplex in the Oakland area. I have little over 100k in an IRA from previous employer. Let's say I buy a 4-plex worth 1 million with 20% down payment, I will have to shell 200k out of pocket, would it be possible and is it even a sane idea to use up the entire IRA for the down payment and fund the remainder of down payment from out of pocket? I also intend to owner occupy

I was thinking if there is a small studio or even a garage within the four plex ,that should cover the IRA part and the rent from that studio/garage can be accounted and deposited directly into the IRA account

please advise

thanks

[Dmitriy Fomichenko]

Not possible! IRA funds can be used to make investments only; they can't be used to buy a residence. You can take a distribution from the IRA, pay the taxes (plus penalties for premature distributions), and then use the funds as you see fit. However, you cannot use IRA funds directly in the transaction you are describing.

You can convert it into a self-directed IRA and buy investment property with it. You are prohibited from using the property personally; it must be a rental. You can't rent it to family members either. You can't do any work on the property yourself, you must outsource everything. You can finance the purchase of an investment property in an IRA, but you must use a non-recourse loan, which typically requires a 30-40% down payment. Leverage in an IRA will produce Unrelated Debt Financed Income (UDFI), subject to Unrelated Business Income Tax (UBIT).

There are plenty of investment options to deploy your IRA funds, but again, using your IRA in connection with this transaction will disqualify your IRA.