Financing a Real Estate Purchase with a Self Directed IRA

Financing a Real Estate Purchase with a Self Directed IRA

Self directed IRAs allow a considerable amount of flexibility when purchasing real estate. Consider the four most commonly used structures for funding a self directed IRA real property purchase.

Direct Purchase (All cash, no debt)

A direct all cash (no debt) purchase is the cleanest and most straight forward way to close a real estate investment in a self directed IRA. In a direct purchase, the buyer purchases a property and pays all transaction fees & expenses in cash. Title to the property is then held by the self directed IRA.

Entity (LLC)

Limited liability company (LLC)  or limited liability partnership (LLP) are common vehicles used by self directed IRAs to invest in real estate. Title to the property is held by the LLC or LLP.  The IRA holds an interest in an LLC (LLP).

Joint Purchase

Self directed IRAs can jointly purchase property with either the IRA owner’s personal after tax funds or IRAs held by other individuals.  Ownership is allocated according to each investor’s contribution, as are profit and losses.

Debt Financing

While self directed IRA may use debt to finance a purchase of real estate, special precautions must be taken. The debt incurred must be non-recourse with respect to the borrower. The property is then held by the self directed IRA. These types of debt financings are done through non-recourse lenders, not traditional bank lenders.

 

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