Leverage Your IRA Investment with a Non Recourse Loan
Join Roger St. Pierre from FWFSB and Dimitriy Fomichenko of Sense Financial for an informative webinar explaining the details of leveraging your next real estate purchase with a Non Recourse Loan.
Buying Real Estate With an IRA and a Non Recourse Loan
Presented by Mat Sorenson of KKOS Lawyers and Roger St. Pierre, Sr. VP First Western Federal Savings Bank
Mathew Sorensen, Partner, KKOS Lawyers, and author of The Self Directed IRA Handbook and Roger St. Pierre, Sr. VP, First Western Federal Savings Bank, on Buying Real Estate with Your IRA and a Non-Recourse Loan. This webinar will be an excellent resource for you, your staff, your friends, and/or your clients and where we have covered the following topics:
Equity Trust Webinar - Non Recourse Multi-Family Investing
Equity Trust's "Equity University" just released a webinar called "Next Level Real Estate Investing is Within Reach" With First Western Federal's Roger St. Pierre. If you didn't get the email, it is attached below.
Learn how to leverage commercial property and multifamily properties with a Non Recourse Loan! To view the webinar, click here: View Webinar
First Western Federal and Next Generation Trust Present Non Recourse Lending Webinar
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.
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.
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.
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.
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:
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.