Self-Directed IRA

[Theresa Pereira]

Hi. I really just have one question that's alot confusing to me. I have a basic IRA which was rolled over from a 401K. Right now it has about $83,000 in it and I still contribute $80 a month into it. I want to change it to a self-directed IRA to buy, rehab and flip properties. We live on Long Island, so the houses out here are around 130k-300k as a mid-range. Of course you will see houses below and above that, but most houses are around that price. So my $83,000 to buy a house isn't enough, I would need to get a mortgage to cover the rest and for the rehab expenses. My question: I've read that all expenses related to the property owned by the self-directed Ira must be paid from the self-directed Ira. If all the money from the Ira was invested in the property how can you use that money to pay any expenses related to it? Thanks for any insight you might give! Teri

[Dmitriy Fomichenko]

Theresa, you are correct, all of the expenses related to the property must come from an IRA (if you buy it inside of an IRA). However, you don't have to purchase the property all cash. You can get a non-recourse loan. The reason you can not use a conventional financing is because you are considered to be a "Disqualified Person" to your IRA and are prohibited to provide a personal guarantee.

There are only handful of lenders specializing in this type of financing and because it is a higher risk for the lender you normally will be required to put 30-50% down.

Here is a list of such lenders that I've compiled over the years that our clients use, hopefully it will be helpful to you as well:
https://www.biggerpockets.com/blogs/2810/50272-lis...

There are also private lenders you can find locally (might be helpful depending on the property condition, LTV, speed, etc.) but expect to pay premium for those.