Can I take out a hard money loan for purchase and use IRA for renovation money?

[Gail Greenberg]

Hi All,

I just put a house under contract that I'm going to flip. My partner and I plan to get a hard money loan for the purchase and then use my self-directed IRA for the renovation funds. My IRA is a "checkbook" IRA so I have an "IRA LLC" and I just take funds out of checking account and put them back in. Here are my questions:

1. In what name should we purchase the house - 1) my IRA LLC, 2) my non IRA entity or 3) my partner's LLC.

2. All the profits I make on this house are going back into my IRA LLC. Can I sign a hard money loan as myself or as manager of my IRA's LLC? Or should I just have my partner sign for the loan and be the only borrower?

Thanks for the help!

[Dmitriy Fomichenko]

@Gail Greenberg

If you are personally buying the property you will not be able to use your IRA funds for the rehab (you are considered a disqualified person to your IRA and IRA is prohibited from conducting any business with disqualified person, in your case would be lending the funds). If you are in fact planning on buying the property in your IRA (not personally), you are not allowed to provide personal guarantee, the loan must be non-recourse. Non-recourse means that there is no recourse that lender has against you or your IRA, property is the only security for the loan. Those loans typically need 30%+ down-payment because of the higher risk for the lender.

It is not 100% clear to me from your description on how you wish to structure this transaction but remember, if you IRA is involved, all of its transactions must be 'arms length', which means no personal benefits to you and you are not allowed to provided any services.

Before engaging in a transaction like this speak with a company/professional who set this up for you, you do not want to make a mistake here, it will be very costly.