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Posts for 2013

Debt Service Coverage - What does that mean?

How much debt will a property support?

Purchasing real estate within an IRA is a good place to invest IRA funds, especially with today’s excellent buys in real estate where markets have turned south. What that means in terms of returns on investment for your IRA are yields better than bank rate CD’s, Wall Street stock and mutual fund returns, and other investments. Your investment strategy and risk tolerance determines where your IRA invests, if a property truly does provide positive returns to the IRA, and if an IRA loan (non-recourse loan) makes sense for a property. Investment strategist’s can provide you with all kinds of formulas for returns on investments. You or your financial advisor or CPA can help make those numbers more clear. What I want you to examine are the impacts of debt on a property and how much debt a given property can support from a lending perspective.

Say you are a flipper and will be reinvesting capital gains in a relatively short time frame. In that case, you may not be too concerned about monthly cash flow if the end strategy is to make the profits on capital appreciation. You probably don’t even want a tenant in a property that you want to sell as soon as possible and want the home to show well. In that case, our reserve requirements would be larger than an income producing property.

However, if a longer-term approach, based on rental income is taken, then First Western Federal Savings Bank is going to look at Debt Service Coverage Ratio (DSCR) and how much debt a given property will support. Let’s look at the components that make up Debt Service Coverage and why it is important to examine.

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Investing In Real Estate With Your SD IRA Using a Non Recourse IRA Loan

5 Reasons to buy rental properties now with your IRA & how to handle

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Your Self Directed IRA and UBIT

This time of year has me thinking about end of the year issues like taxes and how the IRS treats investments in IRAs that are subject to income taxes. You might ask the question, I thought IRAs didn't have to pay income taxes until withdrawals are made? Well, there are instances where income taxes are due and that is when there is debt financing used in an IRA and the investment within the IRA makes a profit. The income is called unrelated debt financed income and the tax due is called UBIT.

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Managing IRA-owned rental properties

When buying real estate within a self-directed IRA, investors must choose a "custodial" firm and weigh the fees it charges. The custodian holds title to a property in accountholders' names and can steer rental income into mutual funds or stocks of their choosing.

The accountholder also must choose a means to manage the property -- whether at her or his own direction, through a property manager or the formation of a limited-liability corporation (LLC). Each has pros and cons.

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Non Recourse Loans and Real Estate for your IRA

Using leverage in an IRA to purchase real estate assets is not a new idea. It has been perfectly legal since 1974 when the original rules were established for individual retirement arrangements (IRA's). By that, I mean that if you wanted to purchase a piece of real estate to hold in your IRA you could do so. And if you wanted to have your IRA borrow some of the money necessary to close the transaction that was perfectly legal also if you didn't have all the funds in your IRA. The only stipulation per IRS rules are that your IRA would need to obtain a non-recourse loan.

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Using IRAs to buy real estate - Six reasons to tap retirement funds now to buy rental property

Since 1974, Americans have had the ability to use IRA assets to buy investment property. Yet the means to do that -- called a self-directed IRA -- remains one of the least known and unheralded investment vehicles in the vast financial marketplace.

Bear in mind homes purchased with IRA funds can't be used for personal purposes. Doing so risks the IRS declaring the assets withdrawn and demanding immediate payment of income taxes and penalties on the entire account value.

Here are six reasons why buying real estate with an IRA is a potentially lucrative and wise move today:

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Buying Real Estate for Your IRA

If you think that your IRA investments are limited to stocks, bonds and mutual funds, you're wrong. Self-directed IRAs can own real estate, too. Here's what you need to know about investing in property for your retirement account.

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Non Recourse Loan Reserves

Non Recourse Loan Reserves (reserve funds left in your IRA) are an important piece of the process when planning that real estate purchase in your self directed IRA, SoloK or IRA LLC. We as a lender and you as an investor should concern yourself with the idea of keeping a liquidity buffer in your Plan so that any unforeseen expense or lack of income can be handled easily without causing stress to you or your IRA.

We as a Non Recourse Lender require that when your retirement plan is borrowing money for the purchase or refinance of an IRA held property that you keep at a minimum 15% of any and all loans outstanding in liquid funds inside the retirement plan. That way should there be some months without a tenant, unexpected repairs, or other unforeseen expenses the IRA can still make any loan payment, do any repair or handle any expense of the IRA or property owned by the IRA without stressing you or your plans finances. It just good business planning.

So when thinking about that property purchase with your self directed IRA, SoloK or IRA LLC, plan for the unexpected and keep some reserves leftover. You'll sleep better at night!

Non Recourse Loans for your IRA

For your self-directed IRA, Non Recourse Loans are a great way to add leverage to that real estate purchase in your self-directed IRA (SDIRA), Solo 401(k), or IRA funded LLC. You don

Buying investment real estate with your self directed IRA is not difficult.

Buying investment real estate with your self directed IRA or IRA LLC or Solo K is not difficult. No more so than a personal investment in real estate.

The only difference is the entity. 

Your retirement plan is the owner/buyer/borrower and all income and expenses flow to and from that entity. Loans are also available as long as it is a non recourse loan. Many investors nationwide are using their self directed retirement plans to purchase investment property. The tax advantages and ability to grow your retirement plan tax deferred or tax free in an asset that you understand and can control is powerful way to build retirement wealth.