Can you mortgage a property in Self-Directed IRA

[Sandra PIrtle]

Can you mortgage a property that is fully owned by your Self Directed IRA to buy more properties?

[Brian Eastman]

@Sandra PIrtle

Yes, an IRA may use debt-financing such as a mortgage.

This can be done on the initial purchase of a property, or a loan can be applied an an already owned property to create additional liquidity in the IRA.

The loan must be non-recourse, meaning no personal guarantee from you.  This limits your choice of lenders.  First Western Federal Savings and North American Savings Bank are the two leaders in this field.

The use of debt-financing creates a tax liability for the IRA. Basically, the percentage of the income that is produced due to the borrowed, non-IRA money is taxed. In most cases, the tax does not add up to much, but is is a detail you will want to be sure to discuss with your tax advisor before proceeding. Even with the tax, the ability to use leverage can produce a real benefit to the IRA in terms of higher cash-on-cash returns.