Apartment Complex

[James Maness]

I am currently looking at a 15 unit complex sales prices$1,350,000. Net rents (minus 5% vacancies) is $170k expenses are $48k. Cap rate would be about 9%. I am thinking of doing a self directed IRA to pay for the down payment and doing a non-recourse loan for the remainder. Any suggestions?

[Brian Eastman]

@James Maness

Your IRA could purchase this property. The IRA would be on title and the loan would need to be non-recourse, meaning no personal guarantee from you.

The non-recourse lenders that would look at such a deal would likely want to see about 35-40% down and 10+% in reserves in the IRA.

The use of debt-financing in an IRA exposes the IRA to UDFI taxation. You should still very much reap the benefits of leverage with your IRA, but would want to work with your CPA to run the numbers and evaluate the impact of this taxation on your returns.